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Author: 


Scovill,  Hiram  Thompson 


Title: 


Farm  accounting 


Place: 


New  York 

Date: 

1920 


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o'^'Farm  accounting,  by  H. 
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^o'^'Farm  accounting,  by  H.  T.  Scovill  ...    New  York,  Lon- 


Bibliography:  p.  411-416. 


1.  Agriculture — Accounting.        j^  Title. 


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LIBRARY 


School  of  Business 


I 


FARM  ACCOUNTING 


■ 


J^ARM 
ACCOUNTING 


BY 

H.  T.  SCOVILL 


AB81STANT  PROFESSOR  OF  ACCOUNTANCT,  UNIVBRSITT  OF  IIXINOU 


D.  APPLETON  AND  COMPANY 
NEW  YORK  LONDON 

1920 


COPYRIGHT,  1918,  BY 
D.  APPLETON  AND  COMPANY 


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TO  MY  WIFE 


PREFACE 

From  the  literature  on  the  subject,  nearly  all  of  which 
has  been  published  during  the  last  five  or  six  years,  one 
might  be  led  to  think  there  was  something  strange  and 
uncommon  about  the  keeping  of  records  of  business  trans- 
actions on  the  farm.    In  the  last  several  years,  many  rec- 
ord books  and  bulletins  on  farm  bookkeeping  and  farm 
costs   have   been   published.      With  very   few   exceptions 
these  bulletins  deal  with  the  subject  from  a  purely  statis- 
tical point  of  view,  without  involving  principles  of  double 
entry  bookkeeping  or  the  fundamentals  of  accounting  the- 
ory.    Very  often  they  fail  to  provide  for  proper  correla- 
tion and  interpretation  of  results  after  they  are  obtained. 
These  bulletins  have  proved  to  be  of  considerable  value, 
however,  in  creating  a  desire  on  the  part  of  the  farmer  for 
a  better  knowledge  concerning  his  financial  condition  and 
progress. 

Perhaps  the  reason  the  subject  is  considered  in  the 
bulletins  from  the  statistical  viewpoint  only  is  found  in  the 
fact  that  double  entry  bookkeeping  has  been  treated  so 
often  in  the  past  as  a  weird  and  difficult  subject  unrelated 
to  anything  else,  requiring  familiarity  with  a  great  many 
rules  and  the  use  of  a  great  amount  of  time  to  operate. 
Naturally  this  would  not  appeal  to  the  farmer  returning 
from  a  hard  day's  work. 

It  has  been  the  intention,  herein,  to  present  the  princi- 
ples  of  bookkeeping   from   the   common    sense   viewpoint 

vii 


VIU 


PREFACE 


PREFACE 


is 


only,  using  a  minimum  number  of  rules.  In  the  applica- 
tion of  these  principles,  agricultural  operations  and  trans- 
actions are  used  in  three  general  ways. 

1.  Showing  the  financial  condition  of  the  farm  and  the 
progress  it  has  made  without  showing  the  source  of  loss 
or  gain. 

2.  Showing  the  financial  condition  of  the  farm  and  the 
progress  it  has  made,  indicating  by  properly  kept  rec- 
ords why  the  condition  is  such;  that  is,  indicating  the 
source  of  loss  or  gain  in  a  general  way. 

3.  Showing  the  financial  condition  of  the  farm  and  the 
progress  it  has  made,  using  subsidiary  cost  records  for 
feed  and  labor,  and  distributing  other  expenses  so  as  to 
show  exact  costs  of  production  and  thus  indicate  which 
branches  of  farming  operations  pay,  and  which  do  not  pay 
on  the  farm  in  question. 

The  arrangement  of  the  subject  matter  is  such  that  a 
student  w^ho  has  a  working  knowledge  of  bookkeeping 
might  begin  with  Chapter  V.  One  semester's  course  of 
double  entry  bookkeeping  should  be  sufficient  to  prepare 
one  for  the  more  specialized  farm  accounting  chapters 
that  follow. 

The  treatment  of  some  accounting  principles  herein  is 
not  in  harmony  with  the  author's  ideas  of  them  as  applied 
to  commercial  accounting.  The  different  conditions,  aims 
and  facilities  on  the  farm  warrant  the  departure  in  most 
instances. 

For  example,  the  titles  "Loss  and  Gain  Account"  and 
"Loss  and  Gain  Statement"  are  used  instead  of  "Profit 
and  Loss,"  "Profit  and  Income,"  "Trading  and  Profit  and 


•f 


Loss"  or  other  terms  in  common  use  in  commercial  ac- 
counting. An  expense  is  not  a  loss,  but  a  means  of  mak- 
ing a  profit.  It  is  the  profit-making  agency  of  a  business. 
Without  expenses  one  cannot  expect  to  make  a  profit. 
Nevertheless,  this  is  considered  as  a  distinction  not  essen- 
tial to  a  correct  understanding  of  the  interpretation  of 
business  transactions  in  the  books  of  a  farm ;  nor  is  it  es- 
sential to  the  formation  of  correct  conclusions  to  be  drawn 
from  the  accounts.  The  term  "Loss  and  Gain"  is  used  as 
one  which  conveys  to  the  average  mind  the  idea  of  expenses 
and  earnings  or  income.  It  is  also  the  one  most  in  har- 
mony with  the  entries  in  the  account — expenses  (losses 
so-called)  to  the  left,  incomes  or  gains  to  the  right.  The 
name  of  the  account  then,  as  written  at  the  head  of  the 
allotted  space,  indicates  on  which  side  of  the  account  an 
item  is  to  appear — losses  or  expenses  under  the  word  Loss, 
and  gains  under  the  word  Gain.  Of  course,  the  rules  of 
debit  and  credit  might  be  applied  without  any  such  assist- 
ance, but  everything  possible  should  be  done  to  make  book- 
keeping a  matter  of  reasoning  rather  than  a  matter  of 
remembering  rules. 

The  method  of  presentation  of  the  principles  of  account- 
ing and  the  art  of  bookkeeping  herein  is  somewhat  unusual. 
In  general,  it  could  be  applied  in  commercial  accounting. 
It  has  been  used  by  the  author  in  lectures  and  note  form 
for  the  past  several  years.  Its  use  seems  partly  substan- 
tiated at  least,  as  two  or  three  elementary  texts  published 
during  the  last  year  seem  to  have  used  a  slightly  modified 
form  of  this  method.  It  is  especially  applicable  in  farm 
accounting.     Students  of  the  latter  subject  ordinarily  do 


X  PREFACE 

not  have  available  any  higher  courses  in  accountancy  in 
which  to  study  the  philosophy  or  theory  of  accounts.  For 
that  reason,  the  theory  and  philosophy  are  developed  along 
with  the  methods  of  analyzing,  recording  and  interpreting 
transactions. 

The  logical  arrangement  of  the  subject  matter  in  a  text 
of  this  nature  requires  special  consideration.  A  study  of 
bookkeeping  and  accounting  is  confined  to  four  big 
branches : 

1.  The  business  transactions  and  adjustments, 

2.  The  accounts  involved. 

3.  The  books  and  records  used. 

4.  The  statements  and  analyses  prepared. 

One  might  study  the  subject  for  years,  but  he  would 
not  reach  beyond  the  four  branches  mentioned.  In  a  sys- 
tematic study,  it  is  not  possible  to  study,  first,  all  about 
the  transactions,  then  all  about  the  accounts,  books  and 
statements  in  the  order  mentioned.  The  four  must  be 
studied  together,  first  the  simple  elements  of  each,  and  then 
the  more  elaborate  elements.  The  use  of  this  process  ac- 
counts for  some  apparent  repetitions  in  the  subject  matter 
which  are  much  more  apparent  than  real.  The  develop- 
ment has  been  along  lines  which  seemed  to  be  most  natural 
and  logical. 

Although  the  four  elements  of  study  mentioned  should 
be  coordinated  to  a  considerable  degree,  each  one  of  the 
four  is  not  considered  of  equal  importance  in  farm  ac- 
counting. In  these  pages,  more  emphasis  is  placed  on 
how  and  why  entries  are  made  to  interpret  transactions 
or  to  make  adjustments,  and  not  so  much  on  the  forms 


r 


PREFACE 


zi 


I 


of  financial  statements.  Tl\e  farmer,  after  keeping  his 
own  accounts,  is  able  to  find  from  the  simple  Loss  and 
Gain  account  and  the  simple  Statement  of  Resources  and 
LiabiHties,  all  the  facts  desired  from  financial  statements. 
Any  further  analytical  results  can  be  prepared  in  the  form 
of  special  analytical  or  statistical  tables.  In  a  commer- 
cial business,  the  financial  statements  occupy  a  more  promi- 
nent place  because  they  are  largely  for  the  use  of  people 
financially  interested  but  who  are  not  familiar  with  the 
daily  transactions  and  the  accounts.  Such  people  need 
more  elaborate  statements  in  order  to  assist  them  in  form- 
ing opinions  as  to  the  progress  and  condition  of  the  busi- 
ness. 

From  a  pedagogical  viewpoint  the  principles  of  com- 
parison and  correlation  used  in  the  development  of  prin- 
ciples herein  should  prove  quite  helpful. 

In  all  cases  where  there  are  two  or  more  methods  of  per- 
forming a  certain  process  the  illustrations  of  these  methods 
employ  the  same  set  of  data.  In  this  way  it  is  plainly 
brought  out  that  any  differences  in  results,  or  form  of  re- 
sults, are  caused  by  the  difference  in  method  rather  than 
the  difference  in  data.  The  author  recently  had  occasion 
to  examine  a  text  on  commercial  arithmetic.  It  was  no- 
ticed in  the  discussion  of  two  ways  of  calculating  interest 
that  one  set  of  data  was  used  in  illustrating  one  method 
and  another  set  in  illustrating  the  other  method.  As  a 
result,  the  student  trying  to  absorb  the  principles  for  the 
first  time,  very  probably  would  not  know  whether  the  dif- 
ference in  results  was  caused  by  the  difference  in  method 
or  in  the  original  data. 


Zll 


PREFACE 


Some  attention  is  also  given  in  these  pages  to  a  discus- 
sion of  the  interpretation  of  results.  An  intelligent  in- 
terpretation of  results,  leading  to  constructive  criticism, 
is  one  of  the  most  important  factors  in  the  success  of  any 
accounting  system.  This  interpretation  and  criticism  is 
materially  strengthened  by  the  use  of  percentages  and 
tabulated  results  in  various  forms. 

The  use  of  mixed  accounts  and  the  Cash- journal  are 
two  principles  advocated  herein  that  should  prove  of  ma- 
terial benefit  to  any  one  interested  in  recording  farm  trans- 
actions. They  afford  a  simplicity  of  operation  not  equaled 
by  the  use  of  the  more  highly  specialized  accounts  and 
books  of  original  entry.  The  natural  increase  in  live  stock 
and  the  uncertainty  of  crop  results  from  a  given  expendi- 
ture of  raw  materials  and  labor  have  no  common  counter- 
part in  commercial  accounting.  They  therefore  require 
accounts  to  meet  the  conditions. 

I 

Carefully  prepared  review  questions  on  the  subject- 
matter  of  the  book  are  grouped  by  chapters  after  the  Ap- 
pendices. They  are  inserted  primarily  as  a  guide  to  study. 
By  following  these  questions  one  may  be  materially  assisted 
in  recognizing  the  essential  points  in  each  chapter. 

There  are  numerous  Illustrative  Problems  following  the 
Review  Questions.  These  problems  are  carefully  graded 
by  chapters  and  have  been  prepared  with  the  idea  of  af- 
fording practical  application  of  the  principles  in  connec- 
tion with  each  chapter.  When  used  as  a  text,  the  problems 
for  a  given  chapter  should  be  worked  immediately  after 
completing  a  study  of  the  chapter. 

Definitions  are  not  presented  as  the  primary  basis  for 


PREFACE 


xiu 


e  i 


t 


performing  various  accounting  operations.  The  logical 
reason  is  brought  out  for  each  step  taken.  However, 
definitions  or  important  statements  of  fact  are  presented 
occasionally  as  a  means  of  summarizing  logical  conclusions. 
Such  definitions  or  important  statements  of  conclusion  are 
shown  in  italics. 

It  is  quite  common  for  a  farmer  to  say  that  he  has  no 
time  for  keeping  accounts.  As  economic  conditions  are 
causing  more  intensive  farming,  higher  land  values  and 
higher  rents,  it  will  not  be  possible  much  longer  to  farm 
in  the  extensive  fashion  that  has  characterized  United 
States  farming  in  the  past.  It  will  become  necessary  to 
plant  those  crops,  or  raise  those  animals,  or  use  such  fer- 
tilizer or  rotation  of  crops  as  prove  most  valuable  under 
the  conditions.  A  knowledge  of  what  pays  best  can  be 
most  accurately  determined  by  keeping  proper  accounts. 

When  economic  conditions  have  so  changed  as  to  make 
it  necessary  to  keep  accounts  on  the  farm,  the  farmer  who 
says  he  doesn't  have  time  to  keep  them  will  be  about  as 
well  off  as  if  he  told  the  elevator  owner  to  destroy  the  grain 
check,  as  he  didn't  have  time  to  call  for  it.  In  either  case 
he  is  undoubtedly  not  getting  all  that  he  should  from  the 
operation  of  the  farm.  The  difference  is  that  in  one  case 
he  knows  just  how  much  he  is  losing  (the  amount  of  the 
grain  check)  ;  in  the  other  case  he  does  not  know  how 
much  he  is  losing. 

The  changing  economic  conditions  are  very  well  illus- 
trated in  a  quotation  from  Dean  Eugene  Davenport^  of 


1  Annals  of  American  Academy,  Vol.  XL,  pp.  45-50. 


nv 


PREFACE 


PREFACE 


the  College  of  Agriculture  of  the  University  of  Illinois, 
part  of  which  follows : 

"Agriculture  has  passed  through  two  definite  stages  of 
development  and  is  now  entering  upon  a  third. 

"The  first  stage  was  called  the  self-sufficing  system. 
Each  family  produced  enough  to  keep  itself  until  the  next 
harvest. 

"The  second  stage  was  called  the  money-making  stage. 
It  arose  about  the  time  of  the  Civil  War,  when  some  states 
became  wealthy  from  the  production  of  wheat.  The  West- 
ern States  created  wealthy  farmers  who  bought  land  for 
$1  or  $2  an  acre,  and  robbed  the  soil  of  its  elements  to 
make  money.  This  land  is  worth  now  from  $100  to  $250 
per  acre.  This  exhaustive  money-making  period  caused 
the  rise  of  the  third  period. 

**The  third  stage  is  called  the  scientific  stage.  It  is 
scientific  as  to  the  feeding  of  animals,  fertilizing  (replen- 
ishing) the  soil,  dairying,  sanitation,  marketing,  manage- 
ment, organization.  Chemistry  was  the  first  science  to 
come  to  the  aid  of  agriculture ;  economics  is  the  latest. 

"Now,  however,  when  the  public  domain  is  practically 
exhausted,  competition  for  land  will  raise  its  price,  food 
values  must  go  up,  for  the  farmer  must  realize  income  on 
his  capital  as  well  as  on  labor,  and  his  business  is  gradu- 
ally assuming  the  form  of  other  capitalized  industries." 

A  feature  of  farm  accounting  that  is  often  overlooked 
is  that  of  dealing  with  the  investment  of  money  after  it  is 
earned.  A  discussion  is  given  herein,  of  the  ways  of  in- 
vesting in  safe  but  profitable  income-producing  assets. 
This  is  considered  as  being  of  essential  economic  impor- 


tance to  the  farmer  and  his  community  since  the  past  has 
demonstrated  that  many  farmers  who  made  a  profit  from 
the  soil  did  not  know  how  to  conserve  nor  properly  utilize 
their  newly  earned  resources. 

Other  topics  having  a  somewhat  direct  bearing  on  the 
business  aflPairs  of  the  farm  are  presented  in  more  or  less 
detailed  manner,  e.g.,  financing  the  farm,  preparing  the 
federal  income  tax  schedule,  borrowing  under  the  Rural 
Credits  Law,  household  accounts  analyzed,  calculation  of 
interest,  the  use  of  common  business  papers  and  other 
points. 

It  is  not  intended  that  the  forms  presented  in  this  book 
shall  be  used  without  first  understanding  the  principles 
back  of  their  use.  An  intelligent  use  of  the  books  and  rec- 
ords described  will  only  follow  a  careful  study  of  the 
principles.  Simplicity,  clearness  and  accuracy  constitute 
the  framework  upon  which  we  have  endeavored  to  construct 
farm  accounts. 

For  assistance  in  obtaining  practical  data  for  some  of 
the  problems,  and  for  participation  in  intelligent  and 
helpful  discussions  on  farm  accounts,  I  wish  to  express  my 
appreciation  of  the  work  of  Mr.  F.  A.  Pearson  of  the 
Dairy  Husbandry,  and  Professor  W.  F.  Handschin  and 
Mr.  J.  B.  Andrews  of  the  Animal  Husbandry  departments 
of  the  College  of  Agriculture  of  the  University  of  Illinois. 
I  appreciate,  also,  the  able  assistance  rendered  by  my  col- 
league, Mr.  A.  C.  Littleton,  in  examining  and  offering 
suggestions  on  the  manuscript. 


t?^ 


CONTENTS 

CHAPTSB 

I.    Bookkeeping  and  Business  Transactions     . 

Accounting  and  Bookkeeping;  Books  of  Account; 
The  Essentials  of  a  Transaction;  The  Use  of  Ac- 
counting Information;  Statement  of  Resources 
and  Liabilities;  Comparison  of  Statements;  Loss 
and  Gain  Statement;  Analysis  of  the  Financial 
Statements;  Illustrative  Problems;  Review  Ques- 
tions. 

H.    The  Ledger 

The  Importance  of  the  Ledger  in  Accounting; 
Bookkeeping  Abbreviations;  Business  Transac- 
tion; Value;  Property;  Capital;  Account;  Debits 
and  Credits ;  Ledger ;  Accounts  Illustrated ;  Analy- 
sis of  the  Entries;  An  Account  in  Balance;  No 
Subtractions  in  Accounts;  Reasoning  out  Debits 
and  Credits;  Interpretation  of  Accounts;  Debit 
and  Credit  Balances;  Statements  Prepared  from 
Ledger  Accounts;  Illustrative  Problems;  Review 
Questions. 

III.  Subdivision  op  Capital  Actcount  .... 
Reason  for  Subdividing  Capital  Account;  A  Com- 
parison of  the  Two  Methods;  Expense  and  Income 
Accounts;  Nominal  Accounts;  Loss  and  Gain  Ac- 
count; Transfer  or  Closing  Entries;  Closing  Loss 
and  Gain  into  Proprietor's  Capital;  Comparison 
of  Results;  Balance  Brought  Down;  Classification 
of  Accounts;  Illustrative  Problems;  Review  Ques- 
tions. 

xvii 


PAcn 

1 


13 


38 


XVlll 

CHAPTER 


CONTENTS 


IV.    The  Trial  Balance 

Explanation  of  Trial  Balance  Terms;  Purpose  of 
the  Trial  Balance;  Trial  Balance  Proves  What? 
Time  of  Taking  a  Trial  Balance;  Procedure  in 
Taking  a  Trial  Balance;  Finding  the  Balance  of 
an  Account;  Listing  the  Balance  in  the  Trial  Bal- 
ance; Adding  and  Proving  the  Trial  Balance; 
Trial  Balance  Details  Illustrated;  Trial  Balance 
Before  and  After  Closing;  Preparation  of  State- 
ments from  Trial  Balance ;  Relation  between  Trial 
Balance  and  Financial  Statements;  Two  Methods 
of  Preparing  Financial  Statements;  Illustrative 
Problems;  Review  Questions. 

V.    Books  of  Original  Entry 

The  Ledger  as  an  Only  Book  of  Entry;  Five  Rea- 
sons for  Using  Books  of  Original  Entry;  Posting; 
Characteristics  of  Specific  Books  of  Original  En- 
try; Simple  Journal;  Simple  Journal  Entries  Il- 
lustrated; Ledger  Accounts  Posted  from  Journal 
Entries;  Posting  from  Simple  Journal;  Simple 
Cash  Book ;  Posting  from  Simple  Cash  Book ;  The 
Cash  Journal;  Posting  from  the  Cash  Journal; 
Optional  Form  for  Cash  Journal ;  Preventing  and 
Finding  Errors;  Precautions  for  Preventing  Er- 
rors; Common  Types  of  Errors;  Rules  for  Find- 
ing Errors;  Correcting  Errors;  Finding  Errors  in 
the  Cash  Balance;  Reconciling  the  Checking  Ac- 
count; Errors  on  Check  Stubs;  Illustrative  Prob- 
lems; Review  Questions. 

VI.    Special  Accounts  and  Entries      .... 

Hired  Man;  Notes  Receivable;  Notes  Payable; 
Notes  Receivable  and  Payable  Distinguished; 
Land  and  Buildings;  Land;  Buildings;  Mixed  Ac- 
counts in  a  Trading  Business;  Mixed  Accounts 
on  the  Farm;  Horses;  Swine;  Cattle;  Poultry; 


PAOB 

62 


CHAPTEB 


83 


xix 
PAoa 


175 


118 


CONTENTS 

Sheep;  Equipment;  Farm  Crops;  Household;  La- 
bor; Board  of  Laborers;  Labor  of  the  Farmer's 
Family;  Feed;  Fertilizer;  Inventories;  Inventory 
Entries  in  Accounts;  Natural  Increase  in  Live- 
stock; Taking  and  Recording  the  Inventory; 
Livestock  Inventory  in  Accounts;  Miscellaneous 
Supplies  Inventory  in  Accounts;  Depreciation; 
Recording  Depreciation  in  Accounts;  Diminishing 
Value  and  Straight  Line  Depreciation;  Building 
Depreciation;  General  Theory  of  Depreciation; 
Closing  Journal  Entry;  Illustrative  Problems; 
Review  Questions. 


VII.    Special  Accounts  and  Entries  (Continued) 

Fair  Exhibits;  Consignments;  Auctions;  Fire 
Loss;  Death  of  Livestock;  Market  Gardening; 
Crops  Sold  Under  Contract ;  Orchards ;  Woodland ; 
Bees;  Partnership;  Opening  Entry  of  a  Partner- 
ship; Closing  Entries  of  a  Partnership;  Interest 
on  Partner's  Net  Capital;  Partners'  Drawing  Ac- 
counts; Partnership  Legal  Difficulties;  Dissolution 
of  Partnership;  Share  Rent;  Effect  of  Share 
Rental  on  Accounts;  Inventory  Record  in  Share 
Rental ;  Cash  Rent ;  Operation  of  More  Than  One 
Farm;  Form  of  Increased  or  Decreased  Wealth; 
Profit  as  Farmer  and  as  Individual;  Illustrative 
Problems;  Review  Questions. 


VIII.    Cost  Accounting 218 

Definition;  Cost  and  General  Accounting  Com- 
pared ;  Use  of  Cost  Data ;  Purpose  of  a  Cost  Sys- 
tem; Finding  Profit  of  Each  Productive  Element; 
Basis  of  Constructive  Criticism;  Fixing  Prices, 
Theoretically;  General  Scheme  of  Operation;  La- 
bor Records;  Monthly  Labor  Record;  Yearly  La- 
bor Record;  Debits  and  Credits  in  Labor  Record; 
Daily   Labor   Record;    Hourly    Cost   of   Labor;    ' 


XX 

CBAPTEB 


CONTENTS 

Horse  Labor  Record;  Tractor  Hours;  Exchange 
Labor  Account;  Exchange  Labor  Balance;  Re- 
cording Exchange  Labor;  Exchange  Labor  for 
Horses ;  Feed  Record ;  Debits  and  Credits  in  Feed 
Record;  Review  Questions. 


PAOB 


245 


IX.    Cost  Accounting    (Continued) 

The  Farm  Plot;  Field  Accounts — General;  Field 
Accounts — Contents;  Operation  of  Field  Ac- 
counts; Operation  of  Crop  Accounts;  Silage  Ac- 
count; Fodder;  Seed  Account;  The  Household  and 
I'arm  Products;  Milk,  Eggs;  Garden;  Pasture; 
By-Products;  Rent  Distribution;  Equipment  Ex- 
pense ;  Work  Horses  and  Other  Horses ;  Deferred 
Charges;  Manure;  Extraordinary  Losses  and 
Gains ;  Interest  as  an  Element  of  Cost ;  Labor  In- 
come and  Capital  Income;  Interest  on  Land;  In- 
terest on  Buildings;  Rent  versus  Interest;  Interest 
on  Mortgaged  Property;  Interest  on  Livestock; 
Interest  on  Working  Capital ;  The  Process  of  Clos- 
ing; Interest  and  General  Expense;  General  Plan 
of  Closing;  Detailed  Procedure  in  Closing;  Modi- 
fications of  Cost  System;  After  the  Books  are 
Closed;  Illustrative  Problems;  Review  Questions. 

X.  Interpretation  op  Cost  Accounts  ....  335 
Importance  of  Correct  Interpretation;  Labor  In- 
comes of  Landlord  Operators;  Incomes  Received 
by  Farm  Tenants;  Incomes  Received  by  Absentee 
Landlords;  Variation  in  the  Profits  of  Absentee 
Landlords;  Meaning  of  Cost;  Meaning  of  Profit; 
Reading  a  Loss  and  Gain  Account;  Analysis  and 
Comparison  of  Results;  Comparative  Analysis  of 
Crop  Account;  Preparation  of  the  Comparative 
Analysis;  Comparison  of  Several  Crops;  Com- 
parative Crop  Production  and  Costs;  Compara- 
tive  Production  of  All   Crops;   Comparison  of 


CONTENTS 

CHAPTEB 

Fields;  Comparison  of  Livestock;  Preparation  of 
Livestock  Analysis;  Analysis  of  Animal  Products; 
Accounts  as  a  Guide  to  Management;  Altering 
Present  Policies;  A  Guide  in  Handling  Labor; 
Tests  of  Labor  and  Horse  Labor  Efficiency;  Mis- 
cellaneous Questions  of  Policy;  Initiating  New 
Projects;  Illustrative  Problems;  Review  Ques- 
tions. 

Appendix  A.    Prices  and  Rates  Used  on  the  Farm 

Interdepartmental  Transactions;  Departmental 
Cost  Method  Used;  Fictitious  Profits;  Pricing  In- 
ventories; Pricing  Commodities  Fed  to  Live- 
stock; Livestock  Kept  for  Profit;  Livestock  Kept 
for  Work;  Pricing  Farm  Products  Consumed  by 
Household;  Rate  of  Interest  on  Investment;  Cal- 
culation of  Wages;  Feed  Record  Calculations. 


XXI 

PAOB 


385 


Bibliography 


Classified  List  of  Books  and  Bulletins  on  Subjects 
Allied  to  Farm  Accounting. 


411 


Index •       •       .       ,        ,    417 


FARM  ACCOUNTING 


CHAPTER  I 
BOOKKEEPING  AND  BUSINESS  TRANSACTIONS 

Accounting  and  Bookkeeping.— The  art  of  classifying 
and  recording  business  transactions  and  facts  systemati- 
cally is  called  bookkeeping.  Accounting  is  that  branch 
of  practical  science  which  treats  of  the  methods  of  classify- 
ing and  recording  business  transactions  so  that  the  facts 
they  exhibit  shall  be  shown  in  their  proper  relations. 

It  is  seen  from  the  definitions  that  bookkeeping  and  ac- 
counting deal  with  the  interpretation  of  business  transac- 
tions. 

Books  of  Account. — Business  transactions  interpreted 
according  to  accounting  principles  are  recorded  in  a  per- 
manent written  form  in  books  of  account.  Such  books 
are  usually  ruled  with  horizontal  lines  in  blue;  and  with 
vertical  lines  in  blue  or  red.  The  vertical  rulings  are  made 
to  provide  columns  for  recording  values  of  transactions  in 
dollars  and  cents. 

In  interpreting  and  recording  a  transaction,  it  is  not 
necessary  that  all  the  details  be  shown.  It  is  expected, 
however,  that  all  the  essential  points  will  be  shown.  For 
example,  Mr.  Arnold  buys  a  horse  of  Mr.  White,  and  pays 
him  $150  in  cash.  This  is  a  business  transaction.  It  might 
be  that  the  completion  of  the  sale  involves  several  offers 
and  counter  offers,  and  several  affirmative  or  negative  state- 

1 


f  FARM  ACCOUNTING 

ments  concerning  the  qualities  of  the  horse.  From  the 
bookkeeping  and  accounting  point  of  view  what  are  the 
essentials  and  what  are  the  non-essentials  of  this  transac- 
tion? Which  facts  concerning  the  transaction  are  to  be 
interpreted  and  which  are  not  to  be  interpreted  in  the 
books  of  account  of  Mr.  Arnold? 

The  Essentials  of  a  Transaction. — One  of  the  most  es- 
sential elements  of  the  transaction  in  question  is  the  value, 
in  this  case  $150.  Another  is  the  form  in  which  the  value 
was  measured,  namely,  horse  and  cash.  In  a  correct  in- 
terpretation of  the  transaction  mentioned,  then,  we  should 
at  least  show  that  cash  and  a  horse  were  involved  to  the 
extent  of  $150.  We  should  record  the  date  on  which  the 
transaction  occurred.  We  might  find  it  desirable  also 
to  show  the  name  of  Mr.  White,  and  also  the  specific  name 
of  the  horse  for  future  reference.  Our  interpretation  on 
the  books  of  account  need  not  state  anything  concerning 
the  offers  and  counter  offers  nor  the  statements  made 
concerning  the  qualities  of  the  animal.  They  are  con- 
sidered as  non-essentials  for  the  purpose  of  bookkeeping 
records. 

The  exact  form  that  this  interpretation  of  the  transac- 
tion should  assume  on  the  books  of  account  will  be  discussed 
when  we  have  investigated  the  use  to  be  made  of  the  trans- 
actions after  they  are  recorded. 

The  Use  of  Accounting  Information. — If  a  man  could 
remember  all  of  his  business  transactions  during  a  year 
and  the  values  concerned,  he  would  not  need  to  keep  any 
written  record  of  them,  unless  it  might  be  for  the  bene- 
fit of  those  who  succeeded  him,  or  for  comparison  of 
one  year's  results  with  another. 

It  is  quite  natural,  then,  from  our  knowledge  of  the 
memory  possessed  by  the  average  man,  to  assume  that  one 
who  indulges  in  business  transactions  should  keep  a  rec- 
ord of  them,  if  he  wishes  to  classify  them  in  any  way  or 


i 


BOOKKEEPING— BUSINESS  TRANSACTIONS       8 

find  the  aggregate  of  his  transactions  for  any  particular 
purpose.  The  most  general  reasons  for  one's  wanting  ag- 
gregate figures  concerning  his  business  are : 

1.  To  show  his  true  financial  worth  at  any  time. 

2.  To  show  whether  he  is  the  possessor  of  more  or  less 
wealth  now  than  at  some  definite  former  time,  and  what 
form  this  increase  or  decrease  assumes. 

3.  To  show  what  elements  have  contributed  to  this  in- 
crease or  decrease  in  wealth. 

Statement  of  Resources  and  Liabilities.— The  aggregate 
of  business  transactions  that  shows  the  financial  worth 
on  a  given  date  is  called  a  Statement  of  Resources  and 
Liabilities  or  Balance  Sheet.  It  contains  a  list  of  the 
Resources  and  a  list  of  the  Liabilities  with  the  money 
values  of  each  indicated. 

A  resource  is  anything  of  value  owned  hy  or  owing  to  a 
given  individual  It  is  better  defined  as  property  or  right 
to  property.  For  example,  ]Mr.  Arnold's  resources  of 
$5000  might  consist  of  cash  $1000,  horses  $1600,  cattle 
$1100,  and  equipment  valued  at  $800,  all  of  which  would 
be  classed  as  property,  and  a  debt  owing  to  him  by  Mr.  Bell 
for  $500,  which  might  be  called  Arnold's  right  to  property 
in  Bell's  possession.  At  law  this  $500  owing  from  Bell  is 
considered  as  Personal  property  of  the  type  known  as 
choses  (things)  in  action.  Resources  are  often  called  As- 
sets. Some  attempt  has  been  made  to  distinguish  between 
the  two  terms,  but  they  may  be  used  interchangeably. 

A  liability  is  an  amount  which  is  owed  to  someone.  It 
might  be  called  the  right  of  someone  else  to  property  of  the 
individual  whose  records  show  the  liability.  For  example, 
Mr.  Arnold's  liabilities  of  $1000  might  consist  of  a  mort- 
gage on  the  equipment  for  $700  and  a  note  payable  to 
the  bank  for  $300,  which  Mr.  Arnold  is  expected  to  pay 
in  30  days.     These  are  known  as  mortgages  payable  and 


t 


4  FARM  ACCOUNTING 

notes  payable  respectively.  Both  of  these  represent  the 
right  of  someone  else  to  property  of  Mr.  Arnold. 

The  difference  between  the  amounts  of  the  resources  <md 
liabilities  is  the  finam^oial  worth  or  net  worth  of  the  indi- 
vidual or  organized  business.  Net  Worth  is  sometimes  bet- 
ter known  as  Capital  or  Net  Capital.  In  the  case  just  cited, 
Mr.  Arnold  with  resources  of  $5000  and  liabilities  of  $1000 
would  have  a  net  worth  or  capital  of  $4000  ($5000—1000). 

His  statement  of  Resources  and  Liabilities  would  appear 
as  in  Illustration  1  at  the  time  his  resources  and  liabilities 
bore  the  values  mentioned. 

ILLUSTRATION  1 

Statement  of  Resources  and  Liabilities 
February  29,  1916— Mr.  Arnold 

Resources 

Cash *1'^^ 

Owing  by  Mr.  BeU 500 

Horses 1'^^ 

Cattle MOO 

Equipment ^^ 

Total  Resources $5,000 

Liabilities 

Mortgage  payable $700 

Note  payable ^^ 

•       Total  LiabiUties 1,000 

Net  Resources $4,000 

(Net  Worth  or  Mr.  Arnold's  Net  Capital) . 

The  statement  is  sometimes  presented  in  another  form,  as 
in  Illustration  2. 


BOOKKEEPING— BUSINESS  TRANSACTIONS 


ILLUSTRATION  2 

Statement  of  Resources  and  Liabilities 
February  29,  1916 — Mr.  Arnold 

Resources  Liabilities 

Cash $1,000  Mortgage  payable 

Owing  by  Mr.  Bell ....  500  Note  payable 

Horses 1.600  Net  Capital   (or  Mr. 

Cattle 1,100           Arnold's  Capital) . . . 

Equipment 800 

$5,000 


$700 
300 

4,000 

$5,000 


Comparison  of  Statements. — The  second  of  the  three  rea- 
sons for  wanting  aggregate  figures,  as  already  enumerated 
on  page  3,  can  be  briefly  illustrated  by  assuming  that  a 
Statement  of  Resources  and  Liabilities  as  compiled  from 
Mr.  Arnold's  records,  appeared  one  year  later,  February 
28,  1917,  as  in  Illustration  3. 

ILLUSTRATION  3 

Statement  op  Resources   and   Liabiuties   Prepared  from 
Appraisal,  February  28,  1917— Mr.  Arnold 

Resources  Liabilities 

Cash $1,000        To  outsiders  (none) 

Owing  by  Mr.  Bell 500        Arnold's  capital  a/c. . .    $5,000 

Horses 1,600 

Cattle 1,100 

Equipment 800 

$5,000  $5,000 


We  see  from  a  comparison  of  the  net  capital  of  Mr. 
Arnold  February  29,  1916,  with  his  net  capital  February 


6  FARM  ACCOUNTING 

28,  1917,  as  shown  in  Illustrations  2  and  3,  that  he  is  worth 
$1000  more  on  the  latter  date  than  on  the  former. 

Upon  closer  examination  of  the  two  statements  we  no- 
tice that  the  resources  are  exactly  the  same  in  every  de- 
tail, while  the  liabilities  of  $1000  at  February  29,  1916, 
do  not  exist  at  February  28,  1917.  Evidently,  Mr.  Arnold 
during  the  year  has  paid  off  the  $700  mortgage  on  the 
equipment  and  the  $300  loan  at  the  bank.  How,  then,  do 
his  resources  remain  the  same?  He  probably  paid  the 
two  obligations  in  cash.  Why,  then,  is  the  cash  balance 
the  same  at  the  end  of  the  second  year  as  it  is  at  the  end 
of  the  first?  Is  it  not  probably  due  to  the  fact  that  Mr. 
Arnold,  as  a  result  of  his  farming  operations  during  the 
year,  received  $1000  in  cash  over  and  above  his  expendi- 
tures for  labor  and  other  items,  which  $1000  he  used  to 
pay  off  his  existing  liabilities  amounting  to  $1000?  In 
other  words,  did  he  not  make  $1000  profit?  This  is  the 
most  natural  assumption  as  to  what  the  transactions  were 
which  resulted  in  the  decrease  of  the  liabilities  at  February 
28,  1917,  compared  with  February  29,  1916,  without  caus- 
ing a  change  in  the  resources  at  the  two  dates  mentioned. 
A  change  in  the  resources  occurred  during  the  year,  per- 
haps several  times,  but  the  statement  of  resources  and 
liabilities  does  not  show  the  changes  or  progress  during 
the  year.  It  shows  only  the  conditions  at  the  close  of  a 
year.  Comparing  it  with  the  close  of  the  preceding  year 
we  see  that  the  Net  Worth  is  $1000  greater. 

If  we  are  to  form  a  general  idea  of  what  changes  took 
place  during  the  year  to  cause  the  $1000  increase  in  Net 
Worth,  as  reflected  in  the  Statement  of  Resources  and 
Liabilities,  it  will  be  naeessary  to  have  further  details 
concerning  the  operation  of  Mr.  Arnold's  business. 

This  brings  us  to  the  third  reason,  mentioned  for  want- 
ing certain   aggregate   results   of   the   year's  operations 


BOOKKEEPING— BUSINESS  TRANSACTIONS       7 

shown  in  money  values,  namely  to  show  what  elements 
have  contributed  to  this  increase  or  decrease  in  wealth. 

Loss  and  Gain  Statement — If  Mr.  Arnold  had  kept 
records  in  only  a  comparatively  brief  form,  we  might  be 
able  to  present  some  aggregate  figures  to  show  how  the 
$1000  increase  arose.  We  should  prepare  for  this  purpose 
a  Loss  and  Gain  Statement  from  the  figures  at  our  dis- 
posal in  Mr.  Arnold's  records.  Such  a  statement  would 
show  the  expenses  incurred  in  running  the  farm  and  the 
incomes  derived  from  the  sale  of  farm  products.  We 
shall  assume  in  this  case,  that  Mr.  Arnold's  records  con- 
tained sufficient  information  for  the  preparation  of  a 
Loss  and  Gain  Statement  as  in  Illustration  4.  The  State- 
ment of  Resources  and  Liabilities  and  the  Loss  and  Gain 
Statement  when  used  collectively  are  known  as  Financial 
Statements, 


ILLUSTRATION  4 

Loss  AND  Gain  Statement  Prepared  from  Imaginary  Data 
FOR  the  Year  Ending  February  28,  1917 — Mr.  Arnold 


Expenses  and  Losses 

Rent $400 

Labor 300 

General  expenses 300 

Balance,  gain  for  the  yr.     1,000 


$2,000 


Incomes  and  Gains 

Milk  Sold $300 

Com  Sold 1,200 

Oats  Sold 400 

Miscellaneous  income .        100 


$2,000 


Analysis  of  the  Financial  Statements.— The  brief  an- 
alytical statement  presented  in  Illustration  4  shows,  in  a 
general  way,  how  Mr.  Arnold  was  enabled  to  pay  off  his 
mortgage  and  bank  loan  amounting  to  $1000,  without  per- 
manently decreasing  his  resources  to  do  it.  He  sold  milk 
for  $300,  corn  for  $1200,  oats  for  $400,  and  miscellaneous 
products  (probably  fruit  and  garden  truck)  for  $1QQ,  mak- 


8 


FARM  ACCOUNTING 


> 


ing  a  total  of  $2000.  His  expenses  were,  for  rent,  $400, 
for  labor  $300,  and  general  expenses  $300,  a  total  of  $1000. 
If  he  received  cash  for  all  the  products  sold,  and  paid 
cash  for  all  the  expenses,  it  would  mean  that  he  received 
$2000  during  the  year  from  farming  operations  which  cost 
him  only  $1000.  The  other  $1000  represents  profit  and 
was  used  to  pay  off  his  mortgage  and  bank  loan. 

The  Loss  and  Gain  Statement  discussed  above,  shows  the 
elements  contributing  to  the  increase  in  wealth  only  in 
a  very  general  way.  A  more  detailed  treatment  of  this  is 
taken  up  in  connection  with  the  subject  of  Cost  Account- 
ingT" 

Having  examined  the  Statement  of  Resources  and  Lia- 
bilities, and  compared  one  yearns  statement  with  another; 
and  having  observed  the  relation  of  the  Loss  and  Gain 
Statement  to  them,  we  have  seen  in  a  general  way  what 
the  object  is  in  keeping  records  of  business  transactions. 
Briefly  stated,  the  object  in  keeping  hooks  of  account  is  to 
furnish  the  essential  facts  from  wMch  one  can  find  the 
financial  condition  of  the  business  at  any  given  date,  and 
the  progress  of  the  business  over  a  given  period  of  time. 
The  Statement  of  Resources  and  Liabilities  shows  the  con- 
dition,  while  the  Loss  and  Gain  Statement  shows  the 
progress. 

Remembering  that  these  statements  are  to  present  facts 
and  results  in  the  aggregate,  at  least  once  a  year  (or  oft- 
ener  if  desired),  we  shall  try  to  find  out  how  the  records 
are  kept  from  day  to  day  so  that  this  valuable  information 
may  be  readily  obtainable  in  a  good  form  that  is  easily 
understood. 

There  are  two  essential  points  to  bear  in  mind  in  keep- 
ing the  records  during  the  year: 

1.  Classification  of  the  transactions. 

(In  what  detail  are  the  transactions  to  be  analyzed, 


BOOKKEEPING— BUSINESS  TRANSACTIONS       9 

and  what  information  is  to  be  recorded  concerning 
each?) 
2.  Method  of  recording  transactions. 

(How  is  the  information  to  be  recorded  so  that  it  can 
be  condensed  as  much  as  possible  and  still  be  specific 
and  easily  utilized  in  preparing  the  annual  state- 
ments?) 
The  second  of  these  points   (the  method  of  recording 
transactions)  is  the  one  that  involves  more  of  the  art  of 
bookkeeping  and  science  of  accounting.     It  is  discussed 
in  the  next  chapter  on  Ledger  Accounts,  and  in  the  chap- 
ter on  Books  of  Original  Entry. 

Briefly,  the  first  point,  the  detail  of  analysis  of  trans- 
actions, involves  a  decision  as  to  what  information  is 
wanted  at  the  close  of  the  year  or  other  time.  We  might 
decide  that  in  our  Statement  of  Resources  and  Liabilities 
we  want  to  show  the  value  of  binders,  mowers,  plows  and 
other  implements  separately  instead  of  grouping  all  of 
them  under  the  head  "equipment."  If  we  do,  it  is  only 
necessary  so  to  keep  the  records  throughout  the  year  that 
this  detailed  information  will  be  available.  Likewise  if 
we  want  to  show  the  income  from  sale  of  oats  and  com 
separately  in  the  Loss  and  Gain  Statement,  we  can  do  so 
by  keeping  our  records  during  the  year  with  that  idea  in 
mind. 

ILLUSTRATIVE  PROBLEMS 

The  following  problems  should  be  prepared  on  ledger  paper 
in  neat  form,  using  Illustration  2  as  a  guide  for  Statements  of 
Resources  and  Liabilities: 

1.  Mr.  Black,  on  March  1,  1916,  has  resources  as  follows: 
Cash  $600,  swine  $700,  poultry  $100,  horses  $1200,  equipment 
$400,  and  a  promissory  note  signed  by  Mr.  Peck  for  $200.  His 
only  liability  is  $60  owing  to  Mr.  Thomas,  a  neighbor  who  loaned 
it  without  security. 


10 


FARM  ACCOUNTING 


Prepare  a  Statement  of  Resources  and  LiabiUties  for  Mr. 
Black  as  of  March  1,  1916. 

n  ^-  ^^^/^b^"^^  28,  1917,  Mr.  Black's  resources  are  as  foUows: 
Cash  $1000,  swine  $700,  poultiy  $100,  horses  $1200,  equipment 
i^V[),  and  a  promissory  note  signed  by  Mr.  Peck  for  $200.  There 
are  no  liabilities  to  outsiders. 

Prepare  a  Statement  of  Resources  and  Liabilities  for  Mr.  Black 
as  of  February  28,  1917. 

3.  Referring  to  problems  1  and  2  above, 

(a)  What  was  Mr.  Black's  net  capital  or  net  worth  at  the 
beginning  of  the  year,  March  1,  1916  f 

1917?  ^"^"^  '""^'^  ^^  '^  ^^  *^^  ''^''^^  ""^  *^®  ^^^""^  February  28, 

(c)  How  much  better  off  was  Mr.  Black's  business  at  the  close 
of  the  year  than  at  the  beginning? 

(d)  What  resources  were  valued  at  the  same  figure  at  the 
close  as  at  the  beginning? 

(e)  What  resources  were  valued  at  a  greater  figure  at  the 
close  than  at  the  beginning  of  the  year? 

(f )  What  change  was  there  in  liabilities  at  the  close  com- 
pared  with  the  beginning  of  the  year? 

(g)  State  what  general  conditions  or  activities  during  the 
year  probably  caused  these  changes  in  resources  and  liabilities 

4.  Mr.  Weld  on  March  1,  1916,  values  his  resources  as  fol- 
lows: Cash  $1000,  cattle  $900,  horses  $1400,  sheep  $600,  equip- 
ment $500,  buildings  $5000,  land  $10,000.  His  liabilities  consist 
only  of  a  mortgage  on  the  land  of  $1000. 

Prepare  a  Statement  of  Resources  and  Liabilities  for  Mr  Weld 
as  of  March  1,  1916. 

5.  On  February  28,  1917,  Mr.  Weld's  resources  are  as  follows- 

fcl^  !^^!i^'  '^*"'  ^^^^'  ^"'"'^  ^^^^^'  «^^«P  $600,  equipment 
$800,  buildings  $5000,  land  $10,000.  He  has  no  liabilities  to  out- 
Elders. 

Prepare   a   Statement   of  Resources  and  Liabilities  for  Mr 
Weld  as  of  February  28,  1917. 

6.  Referring  to  problems  4  and  5  above,  answer  the  questions 
concerning  Mr.  Weld's  business  that  were  asked  concerning  Mr 
Black's  business  in  problem  3  above. 


BOOKKEEPING— BUSINESS  TRANSACTIONS 


11 


i 


7.  Mr.  Smith  on  March  1,  1916,  has  property  with  the  follow- 
ing values :  Cash  $1200,  swine  $600,  horses  $1800,  cattle  $1000, 
poultry  $60,  equipment  $700,  buildings  $4000,  and  land  $12,000. 
He  owes  $100  on  a  promissory  note  at  the  bank. 

Prepare  a  Statement  of  Resources  and  Liabilities  for  Mr. 
Smith  as  of  March  1,  1916. 

8.  On  February  28,  1917,  Mr.  Smith's  resources  consist  of  the 
following:  Cash  $1400,  swine  $600,  horses  $1800,  cattle  $1000, 
poultry  $60,  equipment  $1000,  buildings  $4000,  and  land  $15,000. 
His  only  liability  is  a  mortgage  on  real  estate  of  $2000. 

Prepare  a  Statement  of  Resources  and  Liabilities  for  Mr. 
Smith  as  of  February  28,  1917. 

9.  Referring  to  problems  7  and  8  above,  answer  the  questions 
concerning  Mr.  Smith's  business  that  were  asked  concerning  Mr. 
Black's  business  in  problem  3  above. 

10.  Mr.  White  finds  that  his  income  for  the  year  ending  Febru- 
ary 28,  1917,  was  derived  from  the  following  sources:  sale  of 
corn  $1400,  sale  of  oats  $900,  sale  of  swine  $700,  miscellaneous 
sales  $200.  His  expenses  were  for  labor  $400,  rent  $500.  ffeneral 
items  $700. 

(a)  Prepare  a  Loss  and  Gain  Statement  for  Mr.  White's 
business  for  the  year  ended  February  28,  1917. 

(b)  Is  Mr.  White's  net  capital  greater  or  less  than  at  the 
beginning  of  the   year?     How  much? 

11.  The  Mr.  Smith  mentioned  in  problems  7  and  8  above  finds 
that  his  mcome  for  the  year  ended  February  28, 1917,  was  derived 
from  the  following  sources :  sale  of  wheat  $700,  sale  of  swine  $200 
sale  of  milk  products  $300,  sale  of  corn  $800,  sale  of  timothy  hay 
$100,  sale  of  fruit  and  garden  truck  $100,  sale  of  oats  $600. 
His  expenses  were  for  labor  $500,  interest  on  mortgage  $60,  gen- 
eral items,  $640.  &  &    «^    ,  g 

Prepare  a  Loss  and  Gain  Statement  for  Mr.  Smith  for  the  year 
ended  February  28,  1917. 

12.  Referring  to  problem  11  above, 

(a)  Is  Mr.  Smith's  net  capital  greater  or  less  than  at  the 
beginning  of  the  year? 

(b)  How   much? 

(e)  What  was  Mr.  Smith's  total  incomef 


Il 


12 


FARM  ACCOUNTING 


(d)  Assuming  that  this  figure  represents  the  amount  of  cash 
he  received  from  the  sale  of  the  products  mentioned,  state  how 
that  cash  was  probably  used  before  the  close  of  the  year.  For 
this  purpose  refer  to  the  figures  in  problems  7  and  8  which 
indicate  that  he  had  only  $200  more  cash  at  the  close  than 
at  the  beginning. 

REVIEW  QUESTIONS 

1.  What  is  bookkeeping? 

2.  What  is  accounting? 

3.  What  are  three  of  the  essentials  of  a  business  transaction, 

from  a  bookkeeping  viewpoint? 

4.  Name  three  general  reasons  for  wanting  aggregate  figures 

concerning  business  financial  operations. 

5.  What  is  a  Resource? 

6.  What  is  a  Liability? 

7.  What  is  Net  Worth? 

8.  In  general  what  does  a  Statement  of  Resources  and  Lia- 

bilities contain?  In  what  two  general  forms  may  it  be 
prepared? 

9.  Explain  how  Mr.  Arnold  can  pay  off  Liabilities  of  $1000 

during  the  year  and  yet  have  his  Resources  at  the  close  of 
the  year  valued  at  the  same  figure  as  at  the  beginning. 

10.  What  is  the  purpose  of  a  Loss  and  Gain  Statement?    What 

is  its  relation  to  a  Statement  of  Resources  and  Liabili- 
ties? 

11.  What  is  it  necessary  to  do  during  the  year  in  order  to  have 

information  available  at  the  close  of  the  year  for  a  Loss 
and  Gain  Statement  and  a  Statement  of  Resources  and 
Liabilities  ? 

12.  What  two  main  points  are  to  be  considered  in  keeping  a 

record  of  business  transactions  during  a  year? 

13.  Why  are  the  Statements  illustrated  in  this  chapter  shown  with 

the  year  ending  February  28,  rather  than  December  31  ? 


J 


CHAPTER   II 


THE  LEDGER 


The  Importance  of  the  Ledger  in  Accounting. — ^After  it 
is  decided  how  many  details  are  wanted  in  the  financial 
statements  at  the  close  of  the  year,  or  how  much  special 
information  might  be  wanted  during  the  year,  there  might 
be  one  of  several  methods  chosen  by  which  to  record  the 
transactions  that  affect  the  year's  results. 

They  might  be  recorded: 

1.  In  narrative  or  diary  form  without  the  use  of  techni- 
cal bookkeeping  abbreviations. 

2.  Directly  in  the  ledger  accounts  involved. 

3.  In  a  journal,  cash  book  or  some  other  book  of  original 
entry,  from  which  they  would  be  posted  to  the  ledger  ac- 
counts. 

The  third  method  is  the  one  used  in  practice.  It  is  dis* 
cussed  in  the  chapter  dealing  with  books  of  original  entry. 

The  second  method  is  taken  up  later  in  this  chapter, 
not  because  of  its  practical  nature  (although  it  might  be 
used  where  transactions  are  involved),  but  because  of  the 
opportunity  it  affords  for  an  explanation  of  debits  and 
credits,  capital  and  income,  and  a  general  discussion  of 
accounts  which  are  the  basic  elements  in  bookkeeping  or 
accounting.  With  the  use  of  the  journal  and  cash  book, 
as  mentioned  under  method  3,  the  ledger  accounts  are 
the  final  resting  places  of  all  data  collected.  All  data  for 
subsequent  use  in  finding  the  condition  or  progress  of  the 
business  are  taken  from  the  ledger.  In  other  words,  all 
essential  information  goes  into  the  ledger,  and  all  auxiliary 

13 


14 


FARM  ACCOUNTING 


idbulations  and  statements  are  prepared  primarily  from 
the  ledger. 

Books  could  be  kept,  transactions  recorded,  financial 
statements  prepared,  constructive  criticisms  made  concern- 
ing a  business,  and  in  fact  all  essential  bookkeeping  pur- 
poses served  from  the  proprietor's  viewpoint  without  the 
use  of  any  other  book  than  a  ledger. 

Accordingly  the  ledger  is  used  at  this  time  because  of 
the  opportunity  it  affords  for  presenting  the  essential  prin- 
ciples and  scope  of  bookkeeping  without  the  use  of  un- 
necessary details. 

The  first  method  of  recording  business  events,  which 
would  show  the  transactions  in  narrative  form  as  they 
took  place  from  time  to  time,  might  present  the  informa- 
tion in  some  such  unscientific  way  as  this,  using  Mr.  Ar- 
nold's transactions  as  summarized  on  pages  4  and  5. 

March  1,  1916,  I  (Mr.  Arnold)  have  $1000  in  the  bank; 
Mr.  Bell  owes  me  $500;  my  12  head  of  horses  are  worth  $1600; 
my  20  head  of  cattle  are  worth  $1100;  the  equipment  is  worth 
$800;  I  owe  $700  on  a  mortgage  held  by  Wade  &  Co.,  on  my 
equipment;  I  also  owe  $300  to  the  bank  on  my  90  day  note. 

March  30,  paid  $300  to  bank  to  redeem  note  and  paid  $6 
interest. 

March  31,  paid  $30  to  hired  man;  and  paid  $20  for  general 
expenses. 

April  16,  paid  $60  for  insurance  and  taxes;  and  received  $40 
check  for  milk  sold  to  creamery. 

April  30,  paid  $30  to  hired  man  for  April. 

May  16,  received  a  $60  check  for  milk  sold. 

May  20,  paid  $10  for  sundry  items  in  town. 

May  31,  paid  $30  to  the  hired  man  for  May. 

June  16,  received  a  $65  milk  check. 

June  28,  sold  some  fruit  and  garden  truck  for  $20. 

June  30,  paid  hired  man  $30. 

July  16,  received  milk  check  for  $50. 

July  31,  paid  for  labor,  two  men,  $60. 


THE  LEDGER 


15 


August  16,  received  milk  check  $20. 
August  18,  sold  oats  for  $400. 
August  31,  paid  $30  for  labor. 

September  10,  paid  for  general  expenses  during  threshing  sea- 
son, $25. 

September  16,  received  milk  check  $25  and  paid  $40  for  general 
expenses. 

September  30,  paid  $30  for  labor  for  September. 

October  7,  sold  some  garden  truck  and  fruit  for  $60. 

October  16,  received  milk  check,  $25. 

October  31,  paid  $30  for  labor  in  October  and  paid  $25  for  gen- 
eral expenses. 

November  16,  received  milk  check  for  $15. 

November  18,  sold  garden  truck  for  $20  cash. 

November  30,  paid  $30  for  labor  m  November. 

December  6,  sold  com  for  $12  cash. 

December  10,  paid  off  the  $700  mortgage  to  Wade  and  Co., 
and  $42  interest. 

December  20,  paid  for  sundry  items  $32. 

January  31,  1917,  paid  $20  for  sundry  items  in  January. 

February  20,  paid  $20  for  sundry  items  in  February. 

February  21,  paid  rent  for  year  $400. 

We  might  say  that  the  notations  made  above  concern- 
ing the  business  transactions  of  Mr.  Arnold  constituted 
his  record  for  the  year,  from  which  he  could  make  his 
principal  statements,  showing  his  Resources  and  Liabili- 
ties and  Losses  or  Gains. 

It  is  true  that  he  could  take  the  figures  given  and  pre- 
pare the  statements.  In  order  to  do  that,  however,  it  would 
be  necessary  to  perform  certain  processes  of  addition  and 
subtraction,  which  would  follow  a  separation  of  the  trans- 
actions into  groups. 

Bookkeeping  Abbreviations.—Just  what  groups  should 
be  formed  and  what  titles  these  groups  should  bear  are 
points  that  involve  the  principles  of  bookkeeping  and  ac- 
counting.        / 


FARM  ACCOUNTING 


The  recording  of  the  transactions  named  above,  and  in 
fact  the  recording  of  any  business  transactions  accord- 
ing to  bookkeeping  methods,  involves  a  knowledge  of  the 
abbreviations  used  in  bookkeeping. 

A  baseball  game  is  reported  for  a  newspaper  by  a  pres- 
entation of  the  box  score.  The  box  score  is  merely  an  ab- 
breviated way  of  stating  the  essential  facts  in  the  ball 
game.  Essential,  here,  refers  to  those  facts  that  are  most 
likely  to  be  used  for  reference  in  the  future  in  compiling 
fielding  and  batting  averages.  One  cannot  readily  inter- 
pret the  essential  features  of  the  ball  game  from  the  box 
score,  unless  he  is  familiar  with  the  abbreviations  used  in 
showing  the  number  of  hits,  runs,  errors,  assists,  and  put- 
outs. 

We  are  confronted  every  day  with  the  use  of  abbrevia- 
tions in  some  way  or  other  for  the  purpose  of  presenting 
facts  in  a  brief  but  intelligible  manner.  They  are  used 
in  the  preparation  of  railroad  time  tables,  market  quota- 
tions, and  other  common  ways. 

Bookkeeping  abbreviations  involve  the  systematic  in- 
terpretation of  business  transactions  in  the  books  of  ac- 
count. Such  interpretation  is  founded  on  the  fact  that 
every  business  transaction  has  a  double  effect,  which  needs 
recording.  For  example,  if  Mr.  Arnold  pays  cash  for  some 
horses,  he  decreases  his  property  in  the  form  of  cash  and 
increases  it  in  the  form  of  horses.  The  bookkeeping  ab- 
breviations, then,  must  show  this  twofold  effect,  in  order 
to  present  the  facts  properly. 

Before  illustrating  or  discussing  the  bookkeeping  ab- 
breviations, it  is  advisable  to  find  out  what  is  meant  by 
some  of  the  terms  used  in  this  connection. 

Business  Transaction.— J.  hminess  transaction  is  a 
negotiation  between  two  or  more  persons  which  affects  the 
value  of  the  property  of  either  or  both.  Usually  some- 
thing of  value  is  given  by  each  party  to  the  negotiation, 


THE  LEDGER 


17 


f 


J 


but  this  is  not  necessary.  If  Mr.  Arnold  gives  $10  to  a 
beggar,  it  is  a  business  transaction  even  though  the  beg- 
gar does  not  give  anything  of  value  in  exchange  for  the 
money. 

Value. — Anything  that  has  worth,  purchasing  power,  or 
exchangeable  utility  is  said  to  have  value.  Thus,  prop- 
erty, uses  and  services  have  value.  Uses  are  best  repre- 
sented in  bookkeeping  by  interest  on  money.  Services  are 
best  represented  by  wages  or  salaries  earned. 

Property. — Anything  that  a  person  owns  is  his  property. 
Legally,  property  is  divided  into  two  classes  (1)  real  and 
(2)  personal.  Real  property  consists  of  real  estate,  includ- 
ing any  attachments  thereto,  as  buildings,  fences,  trees 
and  crops  which  grow  up  from  year  to  year  without  re- 
planting. 

Personal  property  includes  all  other  possessions  of  man. 
It  is  generally  divided  into  two  classes,  (a)  corporeal  and 
(b)  incorporeal.  The  corporeal  includes  all  movable, 
tangible  property,  while  the  incorporeal  is  best  represented 
by  a  legal  right  to  property,  known  as  choses  (things)  in 
action.  Thus  when  Mr.  Bell  owes  Mr.  Arnold  $500, 
Mr.  Arnold  is  said  to  possess  personal  property  worth 
$500.  His  property  in  this  case  is  not  tangible.  It  is 
incorporeal. 

In  bookkeeping,  this  type  of  incorporeal  property  is 
listed  under  the  name  of  the  individual  who  owes  it,  rather 
than  under  a  general  title  of  property  or  in- 
corporeal property.  Accounts  Receivable  is  the  gen- 
eral title  given  to  such  incorporeal  property  in  books  of 
account. 

Capital. — Capital  is  the  difference  between  the  resources 
and  the  liabilities  of  an  individual.  In  a  business  enter- 
prise capital  is  the  difference  between  the  resources  and 
liabilities  to  those  not  owning  the  business.  In  other  words, 
it  is  the  property  belonging  to  the  owners  of  the  business 


18 


FARM  ACCOUNTING 


with  no  claims  whatever  against  it.  The  economist  defines 
capital  as  ''wealth  used  in  the  further  production  of 
wealth."  He,  therefore,  considers  all  of  the  resources  as 
capital  regardless  of  the  claims  against  them  by  outside 
parties. 

It  is  the  common  practice  in  bookkeeping  to  show  the 
capital  under  various  headings  to  signify  the  nature  of 
the  property,  horses,  cattle,  cash,  etc.  Under  another  head- 
ing, however,  is  shoum  the  net  total  of  all  the  capital.  This 
latter  heading  is  usually  called  the  proprietor's  capital  ac- 
count, meaning  that  it  shows  the  capital  invested  by  the 
proprietor  or  owner — the  property  which  is  available  for 
his  personal  use  after  debts  to  all  ouiside  parties  have  been 
paid. 

It  should  be  borne  in  mind  that  the  true  capital  of  a 
business  is  its  net  resources.  The  capital  account  of  the 
proprietor  merely  represents  net  capital  in  the  aggre- 
gate. 

Account.' — An  account^  is  the  exhibit  of  the  bookkeep- 
ing effects  resulting  from  transactions  involving  a  particu- 
lar person,  thing,  or  class  of  things.  The  name  of  that 
person,  thing,  or  class  of  things  is  written  at  the  top  of 
the  account. 

Debits  and  Credits. — It  is  customary  to  divide  the  ac- 
count into  two  equal  parts  by  means  of  a  perpendicular 
line,  the  left  hand  part  being  known  as  the  debit  side  and 
the  right  hand  part  as  the  credit  side.  All  items  on  the 
debit  side  are  known  as  debits  and  all  items  on  the  credit 
side  as  credits.  ''Debit"  is  used  interchangeably  with 
"charge." 

An  account  is  not  complete  unless  the  date  of  each  item 
is  shown,  together  with  such  other  data  as  conditions  re- 
quire— such  as  the  folios  of  pages  from  which  the  items 
are  posted,  and  explanations  of  particulars  bearing  upon 

*  Bentley's  "The  Science  of  Accounts." 


THE  LEDGER 


19 


i. 


; 


those  items  sufficient  to  make  the  entry  clear.  Illustra- 
tion 5  shows  an  account  called  Mr.  Arnold's  Capital. 

Ledger. — The  book  in  which  the  accounts  of  a  business 
are  kept  is  called  a  ledger.  The  ledger  is  ruled  in  such  a 
way  as  to  permit  the  accounts  to  be  shown  according  to 
the  principles  stated  above.  It  is  divided  into  two  parts 
by  a  perpendicular  line.  A  column  in  which  to  express 
values  in  dollars  and  cents  is  provided  at  the  extreme  right 
of  each  half  of  the  page.  Date  columns,  explanation  col- 
umns and  reference  columns  are  also  provided  in  the  usual 
ledger  page.  One  or  more  pages  of  the  ledger  may  be  re- 
served for  each  account;  or  more  than  one  account  may 
be  placed  on  a  single  page.  Entries  in  the  ledger  should 
be  made  in  ink,  the  term  "entry"  meaning  the  recording 
of  debits  and  credits  for  a  transaction. 

Accounts  Illustrated. — The  point  has  now  been  reached 
where  an  illustration  of  some  of  the  ledger  accounts  should 
be  studied.  The  ledger  accounts  illustrated  on  the  pages 
immediately  following  have  been  created  from  the  series 
of  transactions  of  Mr.  Arnold  given  on  pages  14  and  15. 
The  accounts  also  illustrate  some  of  the  universal  bookkeep- 
ing abbreviations  in  use,  and  illustrate  the  second  of  the 
three  methods  of  recording  transactions  referred  to  at 
the  beginning  of  this  chapter,  namely,  recording  them  in 
the  ledger  accounts  direct. 

Unless  these  abbreviations  are  studied  and  fixed  logi- 
cally in  mind  one  cannot  expect  to  be  able  to  create  ledger 
accounts  intelligently  from  business  transactions.  An  ef- 
fort should  be  made  to  trace  each  transaction  into  the  ac- 
counts, remembering  that  each  one  is  shown  in  its  twofold 
effect  upon  the  values  of  the  business.  In  other  words, 
each  transaction  has  an  entry  on  the  left  side  of  one  ac- 
count and  on  the  right  side  of  another  account.  The  dates 
can  be  used  advantageously  in  tracing  the  transactions  into 
the  accounts. 


ILLUSTRATION  5 
Ledger  Accounts  with  Proprietor's  Capital, 
Property  and  Liabilities 
Debit*  Mr.  Arnold's  Capital  Credit' 


1916 
Mar. 

Mar. 
Mar. 
Apr. 

Apr. 

May 

May 

June 

July 

Aug. 

Sept. 

Sept. 

Sept. 

Oct. 

Oct. 

Nov. 

uec. 

Dec. 
1917 
Jan. 
Feb. 
Feb. 
Feb. 


30  General  expense 

(Interest) ....  $6 

31  Hired  man's  labor  30 

31  General  expense. .  20 

16  General  (Ins.  and 

taxes) 60 

30  Hired  man's  labor  30 
20  General  expense. .  10 

31  Hired  man's  labor  30 

30  Hired  man's  labor  30 

31  Hired  man's  labor  60 
31  Hired  man's  labor  30 
10  General  expense . .  25 
16  General  expense . .  40 

30  Hired  man's  labor  30 

31  Hired  man's  labor  30 
31  General  expense. .  25 

30  Hired  man's  labor  30 

10  General     expense 

(Interest) 42 

20  General  expense. .  32 

31  General  expense. .  20 

20  General  expense. .  20 

21  Rent  for  year....  400 
28  Bal.    down,    Net 

Capital 5,000 

$6,000 


1916 
Mar.  1 
Apr.  16 
May  16 
June  16 
June  28 

July  16 
Aug.  16 
Aug.  18 
Sept.  16 
Oct.     7 

Oct.  16 
Nov.  16 
Nov.  18 
Dec.    6 


Capital  invested  $4,000 

Milk 40 

Milk 60 

Milk 65 

Fruit  and  Gar- 
den truck 20 

Milk 50 

Milk 20 

Oats 400 

Milk 25 

Garden  truck 

and  fruit 60 

Milk 25 

Milk 15 

Garden  truck. . .  20 

Com 1,200 


1917 

Mar.  1  Bal.  brought 
down 


$6,000 


$5,000 


»The  words  "debit"  and  "credit"  are  pla<sed  on  the  left  and  right  sidea  of  the 
account,  reapectively.  for  ijlustrative  purposes.  In  practice  they  are  seldom  written 
«t  the  head  of  an  account  in  this  way. 

20 


Debit 


THE  LEDGER 


Cash 


21 


Credit 


1916 

;^ar.   1  On  hand $1,000 

Apr.  16  Milk 40 

May  16MUk 60 

June  16  Milk 65 

Jime  23  Fruit  and  Gar- 
den truck 20 

July  16  Milk 50 

Aug.  16  Milk 20 

Aug.  18  Oats 400 

Sept.  16  Milk 25 

Oct.     7  Garden   truck, 

etc 60 

Oct.  16  Milk 25 

Nov.  16  Milk 15 

Nov.  18  Garden  truck . .  20 

Dec.    6  Corn 1,200 


1917 

Mar.   1  Bal.  on  hand 


$3,000 


$1,000 


1916 

Mar.  30  Note  pay $300 

Mar.  30  Interest 6 

Mar.  31  Labor 30 

Mar.  31  General 20 

Apr.  16  Ins.  and  Taxes.  60 

Apr.  30  Labor 30 

May  20  General 10 

May  31  Labor 30 

June  30  Labor 30 

July  31  Labor 60 

Aug.  31  Labor 30 

Sept.  10  General 25 

Sept.  16  General 40 

Sept.  30  Labor 30 

Oct.  31  Labor 30 

Oct.  31  General 25 

Nov.  30  Labor 30 

Dec.  10  Mortgage  pay .  700 

Dec.  10  Interest 42 

Dec.  20  General 32 

1917 

Jan.  31  General 20 

Feb.  20  General 20 

Feb.  21  Rent 400 

Feb.  28  Bal.  down  (on 

hand) 1,000 


$3,000 


22 


FARM  ACCOUNTING 


Mr,  Bell 


1916 

Mar.   1  Balance  due. .. 


$500 


Horses 


1916 

Mar.    1  On  hand  (12) . .  $1,600 


Cattle 


1916 

Mar.   1  On  hand  (20) . .  $1,100 


Equipment 


1916 

Mar.    1  On  hand 


$800 


Mortgage  Payable 


1916 

Dec.  10  Cash  paid $700 


1916 

Mar.    1  Nat'l  Implement 

Co $700 


Notes  Payable 


1916 

Mar.  30  Cash  paid $300 


1916 

Mar.    1  First  Nan  Bk. 
(90  days) .  . . 


$300 


THE  LEDGER 


2S 


Analysis  of  the  Entries. — ^Without  stating  any  conven- 
tional rules,  it  is  essential  that  the  entries  in  the  accounts 
should  be  examined  further  and  analyzed  in  such  a  way  as 
to  lead  to  the  conclusion  that  they  are  made  in  accord- 
ance with  some  well  defined  customs,  or  principles. 

Taking  up  the  first  transaction  presented  on  March  1, 
1916,  in  Mr.  Arnold's  narrative  of  events  as  given  on 
pages  14  and  15,  we  find  that  Mr.  Arnold  invests  cer- 
tain properties  in  the  business.  In  deciding  on  a  way  of  in- 
terpreting this  transaction  in  the  ledger,  we  must  decide 
what  accounts  are  affected,  and  in  what  way  they  are  af- 
fected. Obviously,  in  this  transaction,  Mr.  Arnold's  Capi- 
tal account  is  affected  because  he  is  contributing  capital 
to  the  business.  Each  one  of  the  property  accounts  would 
be  affected  in  so  far  as  they  designate  a  specific  kind  of 
property  invested.  Also,  the  accounts  representing  lia- 
bilities to  other  parties  would  be  involved,  since  they  are 
considered  in  the  determination  of  the  original  capital 
invested. 

In  brief,  this  transaction  gives  rise  to  the  opening  entry 
for  the  purpose  of  opening  a  double  entry  set  of  books.  It 
is  called  double  entry  because  of  the  twofold  effect  of  each 
transaction.  This  is  illustrated  in  the  following  discussion 
of  entries. 

The  net  amount  of  Mr.  Arnold's  investment,  $4000,  is 
placed  on  the  right  or  credit  side  of  his  Capital  account 
and  is  offset  by  the  entries  to  the  property  and  liability- 
accounts  which  make  up  his  investment.  The  item  $1000 
is  placed  on  the  left  or  debit  side  of  Cash  account,  to  show 
cash  received  into  the  business.  On  the  left  or  debit  side 
of  Mr.  Bell's  account  is  placed  the  item  of  $500  to  indi- 
cate the  investment  of  property  which  is  really  a  legal 
right  to  $500  worth  of  the  property  of  Mr.  Bell.  Mr. 
Bell  owes  the  business  $500.  Horses,  Cattle  and  Equip- 
ment accounts  have  $1600,  $1100  and  $800  respectively 


^f 


24 


FARM  ACCOUNTING 


placed  on  the  left  or  debit  side  to  indicate  specific  types 
of  property  received  into  the  business.  On  the  right  hand 
or  credit  side  of  Mortgage  Payable  and  Notes  Payable  ac- 
counts are  placed  the  items  of  $700  and  $300  respectively, 
to  indicate  amounts  owing  by  the  business. 

It  appears,  then,  that  in  opening  a  set  of  hooks,  all  the 
resources  are  placed  on  the  left  or  debit  side  of  the  appro- 
priate ledger  accounts  and  all  liahilities  on  the  right  or 
credit  side.  The  difference  is  credited  to  the  capital  ac- 
count of  the  proprietor.  This  last  amount  is  really  a  lia- 
bility of  the  business  to  the  owner,  or  the  owner's  claim 
against  the  property  of  the  business.  The  claim  of  the 
owner  is,  of  course,  a  secondary  claim  to  be  settled  after 
the  others  have  been  paid. 

It  should  be  noticed  that  in  the  transaction,  just  dis- 
cussed, the  sum  of  the  amounts  placed  on  the  left  or  debit 
side  of  the  various  accounts  is  $5000  ($1000  Cash,  $500  Mr. 
Bell,  $1600  Horses,  $1100  Cattle,  $800  Equipment)  and  the 
sum  of  those  placed  on  the  credit  side  is  $5000  ($4000  Ar- 
nold's Capital,  $700  Mortgage  Payable  and  $300  Notes  Pay- 
able). In  other  words,  the  sum  of  the  debits  resulting  from 
the  transaction  is  equal  to  the  sum  of  the  credits.  This 
should  be  true  of  every  transaction  recorded  in  the  books. 

The  next  transaction  of  Mr.  Arnold 's  as  given  on  page  14 
is  the  payment  of  $300  to  redeem  his  note  held  by  the  bank 
and  a  payment  of  $6  for  interest  thereon.  As  for  the  $300 
payment,  it  decreases  a  resource  in  the  form  of  cash  and 
decreases  a  liability  in  the  form  of  notes  payable.  Ac- 
cordingly, the  entries  should  involve  these  two  accounts  in 
such  a  way  as  to  show  a  reduction  of  $300  in  each.  The 
bookkeeping  form  requires  these  to  be  made  on  the  credit 
or  right  hand  side  of  Cash  account  and  on  the  left  hand 
or  debit  side  of  Notes  Payable  account.  (See  pages  21 
and  22.) 

If  we  were  not  required  to  Qonfona  to  the  universal 


THE  LEDGER 


25 


bookkeeping  abbreviations  referred  to  previously,  we  might 
have  this  transaction  appear  in  the  two  accounts  as'  fol- 
lows: 


Cash 


1916 

Mar.    1  On  hand $1,000 

Mar.  30  Less    paid    on 

note 300 


Balance  on  hand . .     $700 


Notes  Payable 


1916 

Mar.    1  Fu-st  Nat'l  Bk. 

(90  days) . . .     $300 
Mar.  30  Less  redeemed  in 

Cash 300 


Bal.    due    on 
notes $000 


This  method  gives  the  same  information  that  is  given 
m  the  correct  ledger  accounts,  namely,  that  after  paying 
^dOO  to  redeem  the  note,  there  is  $700  in  cash  still  in  the 
business;  and  there  is  nothing  owing  on  simple  promis- 
sory notes.  However,  the  work  involved  in  the  method 
just  Illustrated  is  the  chief  objection  to  its  use.  It  involves 
an  addition  or  subtraction  after  each  entry,  with  as  many 

Th^i-^KM-^T  P*^*"^  "  *  promissory  note  secured  by  a  mortgage. 

,hl!       ^  ^  "  ""  *"'  "***  '•^*''"  ">«"  »»  the  mortgage.    They  are 
shown  in  separate  accoants  for  convenience 


f 


I 


fi6 


FARM  ACCOUNTING 


THE  LEDGER 


27 


opportunities  for  errors  in  the  operations.  Under  the  cor- 
rect method  of  creating  accounts,  the  deduction  is  expressed 
by  placing  the  amount  on  the  opposite  side  of  the  account. 
Immediately  after  making  the  correct  entries  for  this  trans- 
action, the  two  accounts  involved  would  appear  as  follows: 

Cash 


1916 

Mar.   1  On  hand , 


$1,000 


1916 

Mar.  30  Note   payable 
redeemed . . . 


$300 


Notes  Payable 


1916 

Mar.  30  Cash  paid  to  re- 
deem      $300 


1916 

Mar.    1  First  Nat'l  Bk. 

(90  days) . . .     $300 


In  this  illustration  the  only  items  entered  as  a  result 
of  this  transaction  are  the  credit  to  Cash  and  the  debit  to 
Notes  Payable,  the  others  having  been  made  on  March  1, 
at  the  time  of  opening  the  books. 

No  deductions  are  made  on  the  face  of  the  account.  At 
the  close  of  a  month  or  year,  or  at  some  other  special  time 
the  sum  of  the  debit  and  the  sum  of  the  credit  sides  are 
found  separately,  and  the  difference  between  the  two  sums 
calculated  in  pencil  to  find  the  balance  of  the  account. 

An  Account  in  Balance.— In  the  last  illustration  above, 
the  Notes  Payable  account  having  a  debit  and  credit  of 
equal  amounts  is  said  to  be  in  balance.  The  horizontal 
lines  are  used  to  indicate  that  fact. 

No  Subtractions  in  Accounts. — From  the  discussion  of 
the  accounts  as  brought  out  by  this  transaction,  we  can 


{ 


formulate  the  principle  that  subtractions  are  never  made  in 
ledger  accounts  in  recording  transactions.  The  effect  of 
subtraction  is  obtained  by  adding  the  amount  in  ques- 
tion  to  the  opposite  side  of  the  account.  For  that  reason 
we  can  recognize  as  correct,  only  the  last  form  shown  above 
for  the  ledger  accounts  of  cash  and  notes  payable.  In- 
stead of  deducting  the  $300  cash  paid  from  the  debit  side 
of  the  account  it  is  added  to  the  credit  side,  to  show  that 
the  amount  of  cash  in  the  business  has  been  decreased  by 
that  amount.  This  is  a  type  of  one  of  the  very  essential 
abbreviations  used  in  bookkeeping. 

Reasoning  Out  Debits  and  Credits.— Referring  again  to 
the  transactions  of  Mr.  Arnold  for  March  30,  shown  on 
page  14,  there  is  seen  to  be  one  involving  the  payment  of 
interest.     The  $6  paid  for  the  use  of  money,  commonly 
called  interest,  is  placed  on  the  credit  side  of  Cash  account 
because  it  decreases  the  cash  of  the  business.    It  does  not 
reduce  the  amount  of  any  account  showing  a  liability  of 
the  business  to  outside  parties,  nor  is  it  disbursed  in  ex- 
change for  some  other  form  of  property.     It  is  a  plain 
case  of  a  disbursement  of  cash  that  results  in  a  decrease 
of  the  capital  of  the  business.     Therefore,  the  other  ac- 
count affected  by  this  transaction  is  Mr.  Arnold's  capital 
account.     On  which  side  of  the  capital  account  will  this 
$6  be  placed  ?    We  might  say  that  since  every  transaction 
requires  equal  amounts  to  be  placed  on  the  debit  and  credit 
sides  of  the  ledger,  and  since  Cash  account  is  credited 
in  this  case,   then  obviously  the  other  account  involved 
should  be  debited.    This  is  good  logic  and  leads  to  the  cor- 
rect entry,  but  we  should  always  be  able  to  find  a  reason 
for  such  an  entry  from  another  point  of  view.     In  this 
case,  we  debit  Mr.  Arnold's  Capital  account  with  the  $6 
because,  as  previously  stated,  it  is  an  item  that  reduces 
his  capital.     If- it  reduces  his  capital  it  is  the  function 
of  bookkeeping  to  show  his  capital  reduced  in  the  ledger 


28 


FARM  ACCOUNTING 


THE  LEDGER 


99 


His  capital  can  be  reduced  in  the  ledger  only  by  placing 
the  item  on  the  left  hand  or  debit  side  of  the  Capital  ac- 
count. 

After  making  the  complete  entry  for  this  $6  payment 
of  interest,  Mr.  Arnold's  Capital  account  would  appear  as 
shown  in  Illustration  5  on  page  20,  with  only  two 
amounts  in  it,  one  debit  and  one  credit.  Cash  account 
would  have  three  amounts  entered  up  to  this  time,  one 
debit  and  two  credits.  The  Capital  account  would  have 
$4000  on  the  credit  side  entered  at  the  time  the  ledger  was 
opened,  and  $6  on  the  debit  side.  The  Cash  account  would 
have  $1000  on  the  debit  side,  the  amount  of  cash  in  the  busi- 
ness March  1 ;  and  two  items  on  the  credit  side,  $300  and 
$6  respectively. 

On  March  31,  Mr.  Arnold's  narrative  of  events  as  stated 
on  page  12  shows  two  transactions.  He  pays  $30  for  labor, 
and  $20  for  general  expenses.  These  two  classes  of  dis- 
bursement are  usually  considered  as  decreasing  capital 
rather  than  changing  its  form,  hence  they  require  debits 
to  Mr.  Arnold's  Capital  account.  Cash  account  is  credited 
for  the  $30  and  $20  payments,  because  cash  is  decreased 
in  amount  as  a  result  of  the  payments. 

Another  type  of  transaction  that  requires  analysis  at 
this  time  is  the  one  recorded  under  date  of  April  16,  on 
page  14.  It  states  that  Mr.  Arnold  received  a  $40  check 
for  milk  sold  to  the  creamery.  This  is  regarded  as  an  in- 
crease in  the  capital  of  Mr.  Arnold,  and  is  accordingly  en- 
tered on  the  credit  side  of  his  Capital  account.  The  pro- 
duction and  sale  of  milk  has  caused  Mr.  Arnold  to  possess 
more  wealth.  Consequently,  his  Capital  account  is  credited 
to  show  the  addition  of  $40  to  his  wealth.  Cash  account  is 
debited  with  the  $40  because  the  amount  of  cash  in  the 
business  has  been  increased.  A  check  is  considered  as  cash 
in  bookkeeping. 

We  might  proceed  to  take  up  each  of  the  other  trans- 


actions on  pages  14  and  15,  for  discussion  with  a  view 
to  finding  the  reason  for  interpreting  them  in  the  ledger 
accounts  as  they  are  illustrated  on  pages  20-22.  How- 
ever, the  ones  already  discussed  illustrate  all  the  prin- 
ciples involved.  With  the  exception  of  the  $700  mortgage 
paid  off  on  December  10th,  all  the  remaining  transactions 
involve  either  an  increase  in  cash  with  a  resulting  increase 
of  the  Capital  account,  or  a  decrease  in  cash  with  a  corre- 
sponding decrease  in  the  Capital  account. 

Interpretation  of  Accounts.— From  an  examination  of 
Mr.  Arnold's  Capital  account  as  shown  on  page  20, 
we  see  that  it  shows  $4000  net  capital  invested  on  Mar. 
1,  1916.  During  the  year  it  shows  several  additions  to 
capital  on  the  right  side,  aggregating  $2000,  and  several 
deductions  from  capital  on  the  left  side,  aggregating  $1000. 
By  a  purely  arithmetical  process,  then,  we  find  that  the 
capital  at  Mar.  1,  1917,  is  $5000  as  shown  by  the  account, 
or  $1000  more  than  it  was  on  Mar.  1,  1916. 

This  increase  of  $1000  in  net  capital  does  not  take  the 
form  of  an  increase  in  property,  for  all  the  property  ac- 
counts  (Cash,  Mr.  Bell;  Horses,  Cattle  and  Equipment) 
show  the  same  amounts  on  hand  Mar.  1,  1917,  as  on  Mar. 
1,  1916.     It  is  represented  by  a  decrease  in  liabilities. 
Mortgage  Payable  and  Notes  Payable  have  decreased  dur- 
ing the  year  $700  and  $300  Respectively,  a  total  of  $1000. 
Since  Mr.  Arnold  has  just  as  much  property  on  Mar. 
1,  1917,  as  he  had  on  Mar.  1,  1916,  but  owes  $1000  less  to 
other  people,  it  is  quite  apparent  that  he  is  $1000  better 
off.    This  condition  is  reflected  in  his  Capital  account.    We 
find,  then,  that  this  account  fulfils  the  requirements  of  an 
account  as  previously  defined,  in  that  it  is  **an  exhibit  of 
the  bookkeeping  effects  resulting  from  transactions  involv- 
ing a  particular  thing."    The  particular  thing  in  this  case 
is  Mr.  Arnold's  capital. 
Likewise,  Cash,  Horses  and  other  accounts  exhibit  the 


so 


FARM  ACCOUNTING 


bookkeeping  effects  resulting  from  transactions  involving 
cash,  horses,  etc.,  respectively. 

Debit  and  Credit  Balances.— Before  using  the  results  of 
the  ledger  accounts  it  is  necessary  to  find  the  balance  of 
each  one. 

The  balance  of  an  account  is  the  difference  between  the 
sum  of  the  debits  and  the  sum  of  the  credits.  If  the  sum 
of  the  debits  is  greater  than  the  sum  of  the  credits,  the  ac- 
count is  said  to  have  a  debit  balance.  If  the  sum  of  the' 
credits  is  greater  than  the  sum  of  the  debits,  the  account  is 
said  to  have  a  credit  balance.  If  the  sum  of  the  two  sides 
is  equal,  the  a/icount  is  in  balance. 

Thus,  on  pages  20-22,  Cash,  Mr.  Bell,  Horses,  Cattle  and 
Equipment  accounts  have  debit  balances;  Mr.  Arnold's 
Capital  account  has  a  credit  balance,  and  Mortgages  Pay- 
able and  Notes  Payable  accounts  are  in  balance. 

From  a  knowledge  of  the  nature  of  resources,  compared 
with  the  observation  just  made  concerning  balances  of  ac- 
counts, one  can  see  that,  in  this  case,  all  accounts  repre- 
senting resources  have  debit  balances,  and  those  represent- 
ing liabilities  (including  liability  to  the  proprietor)  have 
credit  balances.    When  accounts  are  in  balance  they  do  not 
represent  either  resources  or  liabilities.    It  can  be  stated 
as  a  rule,  that  all  resources  are  represented  by  debit  bat- 
ances  in  ledger  accounts,  but  it  is  pointed  out  later  that 
all  debit  balances  are  not  resources.    Likewise  all  liabili- 
ties are  represented  by  credit  balances  in  ledger  accounts, 
hwt  all  credit  balances  are  not  liabilities.    Up  to  the  pres- 
ent time,  however,  all  accounts  considered  have  represented 
either  resources  or  liabilities,  including  the  Capital  account. 
Statements   Prepared  from  Ledger  Accounts.— -From 
those  ledger  accounts,  then,  we  are  able  to  prepare  a  State- 
ment of  Resources  and  Liabilities,  and  a  Loss  and  Gain 
Statement,  as  in  Illustrations  6  and  7  respectively. 


THE  LEDGER  si 

It  will  be  seen  that  the  Statement  of  Resources  and 
Liabilities  is  the  same  as  the  one  that  was  assumed  as 
being  prepared  from  Mr.  Arnold's  books  in  the  discussion 
of  the  reason  for  keeping  a  record  of  business  transactions. 
(See  Illustration  3.) 

ILLUSTRATION  6 

Statement   of   Resources   and   Liabilities   Prepared   from 
Ledger  Accounts  Feb.  28,  1917— Mr.  Arnold 

Resources  Liabilities 

Cash $1,000.00         To   outsiders   (none) 

Owmg  by  Mr.  Bell . .     500 .  00        Arnold's  Capital $5,000 .  00 

Horses 1,600.00 

Cattle 1,100.00 

Equipment 800.00 


$5,000.00 


$5,000.00 


Recalling  that  Arnold  had  $1000  in  cash  at  the  begin- 
ning of  the  year  (see  Illustration  2),  the  question  arises 
now,  as  it  did  then,  ' '  How  can  Mr.  Arnold  pay  off  $1000 
that  he  owes  and  still  have  the  same  amount  of  cash  at  the 
close  of  the  year  as  he  did  at  the  beginning?"  The  answer 
is,  that  he  did  change  his  cash  balance  several  times  during 
the  year,  but  that  the  increase  in  cash  from  sale  of  prod- 
ucts was  just  enough  to  offset  the  decrease  due  to  payments 
for  expenses,  mortgage  and  note. 

Likewise,  Mr.  Arnold  changed  his  capital  several  times 
during  the  year,  but  the  net  result  only  is  shown  in  the 
Statement  of  Resources  and  Liabilities. 

One  must  look  to  the  Loss  and  Gain  Statement  of  Illus- 
tration 7  to  find  out  more  about  the  changes  in  capital  and 
the  reasons  therefor. 


r 


St 


FARM  ACCOUNTING 


ILLUSTRATION  7 

Loss  AND  Gain  Statement  Prepared  from  Analysis  of  Capital 
Account  for  the  Year  Ending  Feb.  28,  1917— Mr.  Arnold 

ExpcTise  and  Losses  Incomes  and  Gains 

Rent $400.00  Milk  sold $300.00 

Labor. 300.00  Com  sold 1,200.00 

General  expenses....     300.00  Oats  sold 400.00 

Balance,  gain  for  year  1 ,000 .  00  Miscellaneous  Inc  —      100 .  00 

$2,000.00  $2,000.00 


This  statement  shows  that  Mr.  Arnold  made  a  net  gain 
of  $1000  during  the  year.  Accordingly  his  capital  is 
$1000  greater  than  at  the  beginning  of  the  year.  It  has 
been  seen  that  his  cash  balance  is  exactly  the  same  as  at 
the  beginning  of  the  year.  These  facts  lead  to  a  very  im- 
portant conclusion,  namely,  a  gain  during  a  year  does  not 
necessarily  mean  an  increase  of  cash  on  hand  at  the  close 
of  the  year;  a  loss  during  a  year  does  not  necessarily  mean 
a  decrease  of  cash  on  hand  at  the  close  of  the  year. 

The  question  probably  arises  as  to  how  we  get  the  fig- 
ures shown  in  the  Loss  and  Gain  Statement  above.  These 
are  obtained  from  an  analysis  of  Mr.  Arnold's  Capital 
account  of  Illustration  5.  The  items  on  the  left  side  of  the 
Loss  and  Gain  Statement,  with  the  exception  of  the  $1000 
balance,  are  obtained  from  the  left  side  of  the  account. 
They  represent  decreases  in  capital.  The  items  on  the  right 
side  of  the  statement  are  obtained  from  the  right  side  of 
the  account.  They  represent  increases  in  capital.  For  ex- 
ample, the  $300  for  milk  sold  as  shown  in  the  statement 
is  obtained  from  the  sum  of  the  items  on  the  right  side  of 
the  Capital  account,  labeled  **milk.'' 
'  The  sum  of  the  items  on  the  right  side  of  the  statement 
is  $2000,  representing  gross  income  or  gross  increase  in 


THE  LEDGER 


3S 


capital  during  the  year.  The  sum  of  the  first  three  items 
on  the  left  side  of  the  statement  is  $1000,  representing  ex- 
penses or  decreases  in  capital  during  the  year.  The  bal- 
ance, then,  shows  the  net  income,  net  profit  or  net  gain 
and  represents  the  net  increase  in  capital  during  the  year. 
This  increase  is  verified  by  referring  to  Arnold's  capital 
account  which  shows  $4000  capital  March  1,  1916,  and 
$5000  on  March  1,  ^  1917,  an  increase  of  $1000. 


ILLUSTRATIVE  PROBLEMS 

1.  Mr.  Allen  has  property  valued  at  $5000  in  cash,  horses, 
cattle  and  equipment  at  the  beginning  of  the  year.  He  owes 
$1000  on  a  note  at  that  time.  At  the  close  of  the  year  his  Cash, 
Horses,  Cattle  and  Equipment  accounts  show  exactly  the  same 
balances  as  at  the  beginning,  but  his  note  payable  account  is 
closed. 

(a)  What  was  the  balance  of  his  Capital  account  at  the  be- 
ginning of  the  year? 

(b)  At  the  close  of  the  year? 

(c)  What  was  his  net  gain  during  the  yearf 

(d)  If  a  gain  results  in  an  increase  in  capital,  why  do  the 
property  accounts  not  show  an  increase  in  value  at  the  close 
of  the  year? 

2.  Using  ordinary  ledger  paper,  create  accounts  and  the  debits 
and  credits  necessary  therein  to  interpret  the  following  transac- 
tions in  accordance  with  the  bookkeeping  abbreviations  and  prin- 
ciples learned  up  to  the  present  time: 

March  1,  1916,  George  Woods  starts  keeping  his  accounts  in 
a  systematic  way  and  accordingly  values  his  possessions  as  fol- 
lows: Cash  $600,  owing  by  Thos.  Carey  $100,  cattle  $800,  poul- 
try $200,  swine  $900,  horses  $1200,  equipment  $600,  land  $8000, 
buildings  $5500.    He  owes  $8000  on  a  mortgage  note. 

'March  1  and  February  28  are  used  interchangeably  as  occasion 
requires.     The   statements   are   prepared   after  all   transactions  are  • 
entered  February  28,  and  before  any  are  entered  on  March  1. 


<  i 


34 


FARM  ACCOUNTING 


THE  LEDGER 


35 


April  1,  Paid  cash  for  labor  $25. 

May  1,  Paid  $240  for  six  months'  interest  on  mortgage. 

May  6,  Received  $100  from  Thos.  Carey  in  settlement  of  his 
account.  • 

May  7,  Sold  eggs  for  $5  cash. 

May  8,  Paid  cash  for  labor  $25. 

June  1,  Paid  cash  for  labor  $25. 

June  8,  Paid  for  General  Expense  items  $15. 

June  10,  Sold  some  fruit  for  cash  $10. 

July  1,  Sold  some  hay  for  $180  cash. 

July  3,  Paid  cash  for  labor  $45. 

July  6,  Paid  $85  for  some  new  equipment, 

July  21,  Paid  for  General  Expense  items  $25. 

Aug.  4,  Paid  cash  for  labor  $60. 

Aug.  28,  Received  $500  cash  for  oats. 

Sept.  1,  Paid  cash  for  labor  $50. 

Sept.  6,  Received  $25  from  sale  of  fruit  and  vegetables. 

Sept.  20,  Sold  cabbage  for  $400  cash. 

Oct.  1,  Paid  cash  for  labor  $25. 

Nov.  1,  Paid  cash  for  labor  $25. 

Nov.  1,  Paid  for  General  Expense  items  $30. 

Nov.  1,  Sold  all  the  swine  for  $900. 

Nov.  1,  Paid  $240  for  six  months'  interest  on  mortgage  loan. 

Nov.  1,  Paid  $1800  as  part  payment  on  mortgage  note. 

Nov.  28,  Sold  some  com  for  $700  cash. 

Dec.  1,  Paid  cash  for  labor  $30. 

Jan.  3,  1917,  Paid  for  General  Expense  items  $35. 

Feb.  15,  Paid  for  taxes  $80. 

Feb.  21,  Paid  for  fire  insurance  *  premiums  $20. 

3.  From  the  ledger  accounts  created  in  problem  2  above,  pre- 
pare a  Statement  of  Resources  and  Liabilities,  as  of  February 
28,  1917;  and  a  Loss  and  Gain  Statement  for  the  year  ended 
February  28,  1917. 

*When  a  premium  is  paid  on  a  fire  insurance  policy,  only  the 
amount  of  the  premium  enters  into  the  accounts.  The  face  of  the 
policy,  the  amount  collectible  in  case  of  fire,  does  not  affect  the 
accounts  until  a  loss  occurs.  For  such  a  transaction  see  ' '  Fire  Loss, '  * 
Chapter  Vn. 


Note  to  Instructor. — Problems  2  and  3  above  should  be  pre- 
served and  returned  to  students  after  they  have  worked  problems 
1  and  2  at  close  of  Chapter  III.  (See  (e)  Illustrative  Problem 
2,  Chapter  III.) 

4.  Using  ledger  paper  create  accounts  and  the  debits  and 
credits  necessary  to  interpret  the  following  transactions  in  ac- 
cordance with  the  bookkeeping  abbreviations  and  principles 
learned  up  to  the  present  time: 

March  1,  1916,  Harry  Mansfield  began  farming  operations 
with  investment  as  follows:  Cash  at  the  farm  $30,  cash  in  bank 
$1320,  2  horses  $400,  3  head  of  cattle  $120,  equipment  $230. 
He  owes  his  father,  E.  A.  Mansfield,  $700  on  a  promissory  note. 

May  20,  Drew  $50  out  of  the  bank. 

May  28,  Paid  $35  for  labor. 

May  31,  Paid  $16  for  General  Expense  items. 

June  18,  Sold  fruit  for  $10  cash. 

June  30,  Sold  some  hay  for  $160  cash. 

July  19,  Paid  $300  fojr  2  horses. 

July  31,  Paid  $80  for  new  equipment. 

Aug.  16,  Paid  $60  for  labor. 

Aug.  31,  Paid  $70  for  General  Expense  items. 

Sept.  1,  Paid  $21  interest  on  note. 

Sept.  1,  Paid  father  $300  on  the  note,  which  payment  was 
endorsed  on  the  back  of  the  note. 

Oct.  1,  Sold  oats  to  J.  M.  Drew  on  account  $350. 

Oct.  3,  Paid  $70  for  labor. 

Nov.  19,  Received  $40  frotn  sale  of  garden  truck 

Dec.  18,  Paid  $50  for  General  Expense  items. 

Jan.  20,  1917,  Sold  all  the  cattle  for  $175. 

Feb.  18,  Sold  all  the  com  crop  left  for  $250. 

Feb.  20,  Received  $200  from  J.  M.  Drew  on  account. 

Feb.  20,  Paid  taxes  $35. 

Feb.  25,  Paid  $40  for  labor. 

Feb.  26,  Paid  $35  for  General  Expense  items. 

Feb.  28,  Paid  father  $300  on  the  note,  taking  up  the  old  note 
and  giving  a  new  one  for  the  balance  of  the  principal  now  due. 

5.  From  the  ledger  accounts  created  in  problem  4  above,  pre- 
pare a  Statement  of  Resources  and  Liabilities,  as  of  February 


96 


FARM  ACCOUNTING 


'\ 


28    1917;  and  a  Loss  and  Gain  Statement  for  the  year  ended 
February  28,  1917.  ^ 

REVIEW  QUESTIONS 

1.  Name  three  methods,   anyone  of  which  might  be  used  in 

recording  business  transactions  during  a  period  of  time. 

2.  Which  one  of  these  methods  is  used  more  in  practice?    Which 

one  is  unscientific?     Why? 

3.  Why  is  it  considered  advisable  to  learn  the  direct  ledger  ac- 

count method? 

4.  How  is  bookkeeping  assisted  by  the  use  of  abbreviations? 

Why  IS  it  necessary  to  know  and  understand  the  abbreviar 
tions  used  in  bookkeeping? 

5.  Define  business  transaction;  value;  property. 

6.  What  is   capital?     Distinguish   between   accounts   of  prop- 

erty  and  the  proprietor's  capital  account.      • 

7.  What  is  an  account?     What  information  should  be  shown 

in  an  account?  What  is  another  title  for  the  left-hand  side 
of  an  account?    The  right-hand  side? 

8.  What  is  a  ledger?     Illustrate  the  form  of  a  ledger  page. 

9.  In  opening  a  double  entry  set  of  books,  what  entry  is  made 

in  the  proprietor's  capital  account  ?  Any  resources  owned 
at  the  time  of  opening  the  books  are  shown  on  the  books 
in  what  way?  How  are  Uabilities  shown  at  the  time  of 
opening  the  books? 

10.  What  is  true  concerning  the  sum  of  the  debits  and  credits 

resulting  from  any  bookkeeping  transaction? 

11.  Why  does  a  payment  of  $300  to  redeem  a  note  require  a 

credit  to  cash  account?— a  debit  to  notes  payable  ac- 
count ? 

12.  When  $300  cash  is  paid  why  is  it  not  recorded  in  the  cash 

account  as  a  deduction  from  the  debit  side  instead  of  an 
addition  to  the  credit  side? 

13.  What  is  the  difference  between  a  note  payable  and  a  mortgage 

payable  account? 

14.  When  $6  is  paid  for  the  use  of  money,  why  is  Cash  account 

credited?    Why  is  the  proprietor's  capital  account  debited? 


THE  LEDGER 


37 


15.  Why  is  a  $30  payment  for  labor  expressed  in  the  ledger  as 

a  credit  to  cash  and  a  debit  to  the  capital  account? 

16.  When  Mr.  Arnold  receives  cash  for  the  sale  of  milk,  why 

does  he  debit  cash  and  credit  his  capital  account? 

17.  How  is  a  decrease  of  capital  shown  in  Mr.  Arnold's  capital 

account  ? 

18.  If  all  the  property  accounts,  liability  accounts  and  proprie- 

tor's capital  account  have  exactly  the  same  balance  at  the 
close  of  the  year  as  at  the  beginning,  does  it  mean  that 
no  changes  have  taken  place  during  the  year  in  any  of 
the  accounts?     Discuss. 

19.  When  does  an  account  have  a  debit  balance?    A  credit  bal- 

ance?    When  is  it  in  balance? 

20.  If  changes  in  capital  have  taken  place  during  the  year  what 

financial  statement  shows  the  changes? 

21.  Does  a  loss  during  a  given  year  necessarily  mean  that  there 

is  less  cash  in. the  business  at  the  close  than  at  the  be- 
ginning of  the  year?  Why?  Does  a  gain  mean  there  is 
more  cash  in  the  business?     Why? 

22.  How  were  the  figures  obtained  for  the  Loss  and  Gain  State- 

ment in  Illustration  7? 

23.  What  is  the  relation  existing  between  a  Statement  of  Re- 

sources and  Liabilities  as  of  February  28,  1917,  and  a 
Loss  and  Gain  Statement  of  the  same  business  for  the 
year  ending  February  28,  1917? 

24.  Study  the  transactions  in  connection  with  Illustration  5,  and 

state  the  reason  for  each  debit  and  credit  recorded.  Give 
reasons  for  a  decrease  or  increase  in  capital  as  the  transac- 
tions seem  to  indicate  when  recorded  in  Illustration  5. 


CHAPTER  III 
StJBDIVISION  OF  CAPITAL  ACCOUNT 

Beason  for  Subdividing  Capital  Account. — It  has  been 
shown  up  to  the  present  time  how  to  **keep  books'*  consist- 
ing of  only  one  book,  the  ledger,  with  accounts  only  for 
each  of  the  several  classes  of  Resources  and  Liabilities, 
including  the  Proprietor's  Capital  account.  Under  that 
method  the  transactions  of  any  business  operated  by  a  sin- 
gle proprietor  can  be  recorded,  and  statements  of  Re- 
sources and  Liabilities  and  Loss  and  Gain  can  be  prepared. 
If  the  transactions  causing  an  increase  or  decrease  in  capi- 
tal are  very  numerous,  the  preparation  of  a  Loss  and  Gain 
Statement  is  rather  tedious,  for  it  requires  considerable 
work  in  analyzing  the  capital  account  of  the  proprietor. 
It  is  principally  for  that  reason  that  another  method  of 
showing  increases  and  decreases  in  capital  is  much  more 
common.  It  is  based  on  the  principle  that  an  account 
which  requires  much  analysis  in  order  to  present  data  in 
a  usable  manner  should  not  be  created  in  that  way.  In 
order  to  avoid  such  analysis,  separate  accounts  are  used. 
For  example,  under  this  latter  method,  an  increase  in  capi- 
tal due  to  the  sale  of  corn  is  credited  to  Com  account 
rather  than  to  the  Proprietor's  Capital  account;  a  sale 
of  oats  is  credited  to  Oats  account;  and  expense  for  labor 
is  debited  to  Labor  account  rather  than  Capital  account. 

In  this  way  the  total  income  from  corn  can  be  found 
very  easily  from  the  Corn  account  without  the  necessity 
of  picking  out  **com"  items  from  the  Capital  account. 
The  total  expense  for  labor  can  be  found  directly  from  the 

38 


ILLUSTRATION  8 

Propribtob's  Caotal  Account  Showing  Daily  Increases 

AND  Decreases 
DEBrr  Mr.  Arnold's  Capital  Credit 


1916 

Mar.  30  General  (Int.). ...  $6 

Mar.  31  Hired  man's  labor  30 

Mar.  31  General  expense. .  20 

Apr.  16  General    (Ins.    & 

taxes) 60 

Apr.  30  Hired  man's  labor  30 

May  20  General  expense. .  10 

May  31  Hired  man's  labor  30 

Jime  30  Hired  man's  labor  30 

July  31  Hired  man's  labor  60 

Aug.  31  Hired  man's  labor  30 

Sept.  10  General  expense. .  25 

Sept.  16  General  expense. .  40 

Sept.  30  Hired  man's  labor  30 

Oct.  31  Hired  man's  labor  30 

Oct.  31  General  expense. .  25 

Nov.  30  Hired  man's  labor  30 

Dec.  10  General  (Int.). ...  42 

Dec.  20  General  expense. .  32 

1917 

Jan.  31  General  expense . .  20 

Feb.  20  General  expense. .  20 

Feb.  21  Rent  for  year 400^ 

Feb.  28  Bal.    down,    Net 

capital 5000 


$6000 


1916 

Mar.    1  Capital    invest- 
ed   $4,000 

Apr.  16  Milk 40 

May  16  Milk 60 

June  16  Milk 65 

June  28  Fruit   and  gar- 
den truck 20 

July  16  Milk 50 

Aug.  16  Milk 20 

Aug.  18  Oats 400 

Sept.  16  Milk 25 

Oct.     7  Garden  truck 

and  fruit 60 

Oct.  16  Milk 25 

Nov.  16  Milk 15 

Nov.  18  Garden  Truck . .  20 

Dec.    6  Com.. 1,200 


$6000 


1917 

Mar.  1  Balance  brought 

down $5000 


39 


r 


40 


FARM  ACCOUNTING 


Labor  account.  In  fact,  the  Loss  and  Gain  Statement  can 
be  prepared  from  the  results  obtained  from  the  various 
accounts  showing  expense  and  income. 

A  Comparison  of  the  Two  Methods. — A  comparative 
study  of  the  two  methods  of  treating  transactions  that 
cause  increases  or  decreases  in  capital  tends  to  show  the 
advantages  or  disadvantages  of  each.  For  this  purpose, 
the  transactions  of  Mr.  Arnold  are  used  as  stated  in  narra- 
tive form  on  pages  14  and  15.  Since  this  different 
method  of  recording  increases  and  decreases  in  capital 
does  not  change,  in  any  material  way,  the  other  accounts 
as  Cash,  Horses,  etc.,  of  Illustration  5,  they  are  not  repro- 
duced here. 

The  Capital  account  of  Mr.  Arnold  is  reproduced  here 
exactly  as  shown  in  Illustration  5  to  assist  in  the  compari- 
son. 

When  all  increases  and  decreases  of  capital  are  entered 
directly  into  the  Capital  account  as  in  Illustration  5,  the 
account  appears  as  in  Illustration  8. 

Expense  and  Income  Accounts. — ^When  increases  and 
decreases  in  capital  are  recorded »  in  the  appropriately 
named  accounts  of  income  and  expense,  the  group  of  ac- 
counts presented  in  Illustration  9  is  required  to  take  the 
place  of  Mr.  Arnold's  Capital  account  as  shown  in  Illus- 
tration 8. 

ILLUSTRATION  9 

Expense  and  Income  Accounts  and  Capital  Account 

Mr.  Arnold^ s  Capital 


1916 

Mar.    1  Capital  invest- 
ed   $4000 


Rent 


1917 

Feb.  21  Cash $400 


SUBDIVISION  OF  CAPITAL  ACCOUNT 


41 


Labor 


1916 

Mar.  31  Cash $30 

30 

30 


Apr.  30 
May  31 
June  30 
July  31 
Aug.  31 
Sept.  30 
Oct.  31 
Nov.  30 


30 
60 
30 
30 
30 
30 


General  Expense 


1916 

Mar.  30  Cas'i  (Int.) $6 

Mar.  31  " 20 

Apr.  16  "   (Ins.  and 

taxes) 60 

May  20  Cash 10 


Sept.  10  " 

Sept.  16  " 

Oct.  31  " 

Dec.  10  " 

Dec.  20  " 
1917 

Jan.  31  " 

Feb.  20  " 


25 
40 
25 
42 
32 

20 
20 

Milk 


1916 

Apr.  16  Cash 

May  16  " 

June  16  " 

July  16  " 

Aug.  16  "  . 

Sept.  16  "  . 

Oct.  16  "  . 

Nov.  16  "  . 


$40 
60 
65 
50 
26 
25 
25 
15 


42 


FARM  ACCOUNTING 


Corn 


SUBDIVISION  OF  CAPITAL  ACCOUNT 


4,8 


1916 

Dec.    6  Cash 


$1200 


Oats 


1916 

Aug.  ISCasli $400 


Miscellaneous  Income 


1916 

June  28  Cash  (Fruit  & 

Garden  truck)     20 
Oct.     7  Cash  (Fruit  & 

Garden  truck)     60 
Nov.  18  Cash  (Fruit  & 

Garden  truck)     20 


The  expense  and  income  accounts  of  Illustration  9,  such 
as  Rent,  Labor,  General  Expense,  and  others  are  intended 
to  record  transactions  showing  decreases  and  increases  of 
capital.  Those  items  showing  increases  are  placed  on  the 
credit  side  and  those  showing  decreases  of  capital  are  placed 
on  the  debit  side  of  the  ledger,  but  are  placed  under  some 
other  heading  than  Capital  account.  For  example,  the 
$400  on  the  debit  side  of  Rent  account  in  Illustration  9 
is  the  same  item  that  appears  in  Illustration  8  on  the  debit 
side  of  Mr.  Arnold's  Capital  account,  dated  Feb.  21. 

Both  items  were  created  as  a  result  of  the  same  transac- 
tion but  under  different  methods  of  accounting.  The 
debit  to  the  Capital  account  was  made  under  the  method 
that  shows  all  increases  and  decreases  in  the  capital  of  the 
business  direct  in  the  Capital  Account.  The  debit  to  Rent 
account  was  made  under  the  method  that  shows  increases 


and  decreases  of  capital  under  various  appropriate  heads 
named  so  as  to  show  the  reason  for  such  increases  and  de- 
creases. The  transaction  under  discussion  is  the  one  shown 
on  page  14,  in  which  Mr.  Arnold  paid  $400  on  Feb.  21  for 
the  year's  rent.  Under  the  first  method,  that  of  showing 
increases  and  decreases  of  capital  direct  in  the  Capital 
account,  the  entry  made  is  a  debit  to  Mr.  Arnold's  Capi- 
tal account  and  a  credit  to  Cash  account.  Under  the  sec- 
ond method,  that  of  showing  increases  and  decreases  of 
capital  temporarily  in  other  accounts  appropriately  named, 
the  entry  made  is  a  debit  to  Rent  account  and  a  credit 
to  Cash  account. 

Similarly,  under  the  second  method  of  recording  in- 
creases and  decreases  of  capital,  when  $30  is  paid  for  labor 
on  March  31,  the  entry  is  a  debit  to  Labor  account  and  a 
credit  to  Cash  account.  When  garden  truck  is  sold  for 
$20  cash,  the  Cash  account  is  debited  and  Miscellaneous 
Income  account  credited.  An  account  called  Garden  Truck 
can  be  kept  if  desired.  In  this  way,  all  of  the  items  in 
the  several  accounts  of  Illustration  9  might  be  traced  from 
the  transactions  stated  on  pages  14  and  15. 

Nominal  Accounts. — It  is  customary  in  business  practice 
to  use  the  several  specially  named  accounts  for  recording 
increases  and  decreases  in  capital.  Those  acc&umts  showing 
increases  in  capital  are  called  income  accounts;  those  show- 
ing decreases  in  capital  are  called  expense  accounts.  All 
expense  and  income  accounts  are  known  as  nominal  ac- 
counts. They  bear  this  title  largely  because  of  the  fact 
that  they  are  only  temporary  accounts,  while  the  resource, 
liability  and  Capital  accounts  are  more  or  less  permanent. 
The  nominal  accounts  are  said  to  be  temporary,  and  at  the 
same  time  merely  subdivisions  of  the  Proprietor's  Capital 
account  because  they  show  the  nature  of  increases  and  de- 
creases in  capital  only  for  a  brief  period  of  time.  At  regu- 
lar intervals,  the  results  of  the  several  nominal  accounts 


■» 


44 


FARM  ACCOUNTING 


are  assembled  in  one  place.  From  this  place  the  net  result 
of  all  increases  and  decreases  in  capital  is  determined,  and 
such  result  is  shown  in  a  single  amount  in  the  Proprietor's 
Capital  account. 

Loss  and  Gain  Account.— These  several  accounts,  taking 
the  place  of  the  one  Proprietor 's  Capital  account,  enable  us 
to  find  more  easily  the  expenses  and  incomes  of  various 
sorts,  but  they  do  not  as  yet  enable  us  to  determine  what 
the  net  increase  or  decrease  in  capital  is,  or  what  the  capi- 
tal is  at  the  present  time.  In  order  to  find  these,  it  is  nec- 
essary to  perform  another  step  in  the  correlation  of  the 
accounts  just  presented.  It  is  necessary  to  bring  the  re- 
sults of  the  accounts  of  expense  and  income  into  the  Capi- 
tal account.  This  is  accomplished  through  the  medium  of 
a  Loss  and  Gain  account.  After  this  process  is  performed 
the  accounts  should  appear  as  in  Illustration  10. 

ILLUSTRATION  10 

Nominal  Accounts  Closed  Into  Capital  Through  Loss  and 

Gain  Account 

Mr.  Arnold's  Capital 


1917 

Feb.|28  Balance  down. .  $5,000 


$5,000 


1916 

Mar.    1  Capital  invested  $4,000 

1917 

Feb.  28  From  loss  and 

gain 1,000 


$5,000 


1917 

Mar.    1  Balance,  net 

capital $5,000 


I 


SUBDIVISION  OF  CAPITAL  ACCOUNT 


Rent 


45 


1917 

Feb.  21  Cash 


$400 


1917 

Feb.  28  To  loss  &  gain    $400 


Labor 


1916 

Mar.  31  Cash $30 

30 

30 

30 

60 

30 

30 

30 

30 


Apr. 

30  ' 

May  31  ' 

June  30  ' 

July 

31  ' 

Aug. 

31  ' 

Sept. 

30  * 

Oct. 

31  ' 

Nov.  30  ' 

1917 

Feb.  28  To  Loss  &  Gam    $300 


$300 


$300 


General  Expense 


1916 

Mar.  30  Cash  (Interest).  $6 

Mar.  31   "  20 

Apr.  16   "   (Ins.  & 

Taxes) 60 

May  20  Cash 10 

Sept.  10  "  25 

Sept.  16  "  40 

Oct.  31   "  25 

Dec.  10  "  (Interest).  42 

Dec.  20  "  32 

1917 

Jan.  31  "  20 

Feb.  20  "  20 


1917 

Feb.  28  To  Loss  &  Gain  $300 


$300 


(I 


$300 


46 


FARM  ACCOUNTING 


Com 


1917 

Feb.  28  To  Loss  &  Gain  $1,200 


1916 

Dec.    6 Cash, 


$1,200 


Oats 


1917 

Feb.  28  To  Loss  &  Gain    $400 


1916 

Aug.  18  Cash , 


$400 


Milk 


1917 

Feb.  28  To  Loss  &  Gain    $300 


$300 


1916 

Apr.  16  Cash 
May  16 
June  16 
July  16 
Aug.  16 
Sept.  16 
Oct.  16 
Nov.  16 


$40 
60 
65 
50 
20 
25 
25 
15 


$300 


I 


Miscellaneous  Income 


1917 

Feb.  28  To  Loss  &  Gain.    $100 


$100 


1916 

June  28  Cash  (Fruit  & 

Garden  truck)     $20 
Oct.     7  Cash  (Fruit  & 

Garden  truck)      60 
Nov.  18  Cash  (Fruit  & 

Garden  truck)      20 


$100 


SUBDIVISION  OF  CAPITAL  ACCOUNT 


Loss  and  Gain 


47 


1917 

1917 

Feb. 

28  From  Rent $400 

Feb. 

28  From  Milk ....     $300 

Feb. 

28  From  Labor...      300 

Feb. 

28 From  Corn....    1,200 

Feb. 

28  From  General 

Feb. 

28  From  Oats....      400 

expense 300 

Feb. 

28  From  Misc.  In- 

Feb. 

28  To  Arnold's  Cap. 

a/c  Net  Gain   1,000 

. 

come  100 

$2,000 

$2,000 

The  Loss  and  Gain  account  is  created  temporarily  in  the 
ledger  at  the  close  of  a  year  or  other  fiscal  period,  as  a 
summary  account,  into  which  is  brought  the  aggregate  re- 
sults of  each  of  the  other  accounts  that  show  expenses  or 
incomes.  It  should  not  be  confused  with  the  Loss  and  Gain 
statement,  as  the  latter  is  not  a  ledger  account,  but  is  a 
supplementary  analysis  of  some  of  the  facts  shown  in  the 
ledger.  It  is  true  that  in  its  simplest  form,  as  already 
illustrated,  the  Loss  and  Gain  Statement  looks  very  much 
like  a  Loss  and  Gain  account,  but  in  a  more  elaborate 
and  elucidating  form  its  similarity  to  the  account  is  less 
noticeable.  In  the  exercise  at  hand,  the  Loss  and  Gain 
statement  would  be  merely  a  copy  of  the  Loss  and  Gain 
account. 

The  Loss  and  Gain  account,  then,  is  a  sort  of  place 
for  the  bringing  together  of  figures  which  affect  the  loss 
or  gain  of  a  business.  From  it  may  be  seen  in  one  account, 
the  last  one  in  Illustration  10,  that  the  expense  for  rent 
is  $400,  for  labor  $300,  for  general  expense  $300,  and  that 
the  income  from  milk  is  $300,  from  corn  $1200,  from  oats 
$400,  and  from  miscellaneous  items  $100.  In  order  to  find 
the  resulting  net  gain  or  loss  from  these  several  items  it  is 
necessary  to  bring  them  together  and   perform  certain 


48 


FARM  ACCOUNTING 


SUBDIVISION  OF  CAPITAL  ACCOUNT 


49 


! 


processes  of  addition  and  subtraction.  One  not  acquainted 
with  bookkeeping  methods  might  think  it  necessary  to  per- 
form this  brief  calculation  on  a  separate  piece  of  paper, 
but  bookkeeping  principles  and  abbreviations  provide  for 
a  more  systematic  and  permanent  method. 

The  expense  for  rent  is  removed  from  the  debit  side 
of  Rent  account  and  placed  on  the  debit  side  of  Loss  and 
Gain  account,  where  it  can  be  used  in  connection  with  other 
expenses  and  other  incomes  transferred  to  the  latter  ac- 
count for  the  purpose  of  finding  the  net  result.  After 
the  net  result  of  all  nominal  accounts  is  found  in  Loss 
and  Gain  account  it  is  removed  from  that  account  and 
placed  in  Capital  account. 

Transfer  or  Closing  Entries.— The  method  of  removing 
or  transferring  these  balances  from  one  account  to  another 
involves  bookkeeping  abbreviations  that  require  further 
study  and  analysis.  It  involves  closing  entries.  Closing 
entries  are  those  made  to  transfer  expenses  and  incomes 
from  their  several  accounts  into  the  capital  account  of  the 
proprietor.  Consider  first  the  transfer  of  the  $400  rent 
from  the  debit  side  of  Rent  account,  to  the  debit  side  of 
Loss  and  Gain  account,  as  in  Illustration  10.  Before  the 
transfer,  the  Loss  and  Gain  account  did  not  contain  any 
entries,  while  the  Rent  account  appeared  as  follows : 

Ttent 


1917 

Feb.  21  Cash 


$400 


In  order  to  transfer  this  amount  from  Rent  account  to 
the  Loss  and  Gain  account,  one  might  choose  the  way  most 
natural  to  the  person  not  accustomed  to  bookkeeping  meth- 
ods. This  natural  but  wrong  method  would  consist  in 
drawing  a  line  through  the  entry  under  Rent  account  and 


writing  the  entry  under  Loss  and  Gain  account,  in  this 
way : 

Rent 


1917 

Feb.  21  Cash, 


$400 

Loss  and  Gain 


1917 

Feb.  28  Cash  for  rent 


$400 


This  process  would  give  the  result  sought,  namely,  the 
elimination  of  the  $400  balance  in  Rent  account,  and  its 
transfer  to  the  same  (debit)  side  of  Loss  and  Gain  ac- 
count. Bookkeeping  principles,  however,  will  not  permit 
the  transfer  to  be  made  in  the  way  just  indicated.  In  fact, 
it  might  be  stated  as  a  principle  of  bookkeeping,  that  an 
item  or  balance  in  an  account  should  never  he  crossed  out 
preparatory  to  its  transfer  to  somie  other  account.  In  or- 
der to  transfer  an  item  or  group  of  items  from  the  debit 
side  of  one  account  to  the  debit  side  of  another,  credit  the 
account  from  which  the  amount  is  transferred  and  debit 
the  account  to  which  it  is  transferred.  Thus,  in  the  case  of 
Rent  account  under  discussion,  the  correct  transfer  would 
cause  the  accounts  to  appear  as  in  Illustration  11. 

ILLUSTRATION  11 
Closing  Rent  Account  into  Loss  and  Gain  Account 

Rerd 


1917 

Feb.  21  Cash, 


$400 


1917 

Feb.  28  To  Loss  &  Gain    $400 


I 


(    k 


50 


FARM  ACCOUNTING 


Loss  and  Gain 


1917 

Feb.  28  From  Rent ....    $400 


This  conforms  to  the  principle  that  a  debit  and  credit 
of  equal  amounts  should  be  made  for  every  transaction. 
It  gives  the  results  that  were  wanted,  namely,  the  elimina- 
tion of  the  $400  from  the  debit  side  of  Rent  account  and  its 
transfer  to  the  debit  side  of  Loss  and  Gain  account.  It  is 
the  principle  that  should  always  be  followed  in  transfer- 
ring an  item  or  group  of  items  from  one  account  to  an- 
other. In  Illustration  11,  it  is  seen  that  there  is  an  item 
of  $400  on  the  debit  side  of  Rent  account  and  one  of  $400 
on  the  credit  side.  The  account  is  therefore  in  balance. 
The  double  lines  ruled  under  the  amount  on  each  side 
indicate  this  fact,  and  also  indicate  that  any  items  subse- 
quently placed  under  Rent  account  are  not  to  be  mingled 
in  any  way  with  any  of  the  figures  above  the  double  lines. 

Similarly  the  transfer  of  the  total  milk  income  from  the 
Milk  account  of  Illustration  10  to  the  Loss  and  Gain  ac- 
count is  effected  by  making  a  debit  entry  in  Milk  account, 
and  a  credit  entry  in  Loss  and  Gain  account  for  the  amount 
of  the  total  income  from  milk  for  the  period  of  time  in 
question,  one  year.  In  order  to  transfer  an  item  or  group 
of  items  from  the  credit  side  of  one  account  to  Hhe  credit 
side  of  another,  debit  the  account  from  which  the  amount 
is  transferred  and  credit  the  accoumt  to  which  it  is  trans- 
ferred. 

From  a  careful  observation  of  the  accounts  of  Illustra- 
tion 10,  it  can  be  seen  that  the  debits  to  Rent,  Labor  and 
General  Expense  accounts  are  tabulated  under  appropriate 
titles  during  the  year;  but  at  the  close  of  the  year  they 
are  transferred  each  in  total  to  the  debit  of  Loss  and  Gain 
account.    Likewise,  the  totals  of  Milk,  Com,  Oats  and  Mis- 


f 


SUBDIVISION  OF  CAPITAL  ACCOUNT 


51 


cellaneous  Income  respectively  are  transferred  at  the  close 
of  the  year  to  the  credit  of  Loss  and  Gain  account.  The 
result  of  these  transfers  is  that  the  accounts  in  which  the 
various  expenses  and  incomes  are  tabulated  during  the 
year  are  closed  and  ruled  off  at  the  close  of  the  year,  while 
the  Loss  and  Gain  account  is  created.  This  newly  created 
Loss  and  Gain  account  contains  the  essential  financial  in- 
formation of  all  the  accounts  closed  into  it.  It  shows  the 
total  expense  for  rent,  labor  and  general  items.  It  shows 
the  total  income  from  milk,  corn,  oats  and  miscellaneous 
sources.  Any  details  concerning  these  expenses  or  in- 
comes can  be  found  by  reference  to  the  several  accounts 
closed.  The  essential  financial  information  is  the  total  ex- 
pense and  income  of  each  class. 

By  bringing  these  figures  together  the  net  gain  is  easily 
determined,  since  it  is  found  by  subtracting  the  total  ex- 
penses from  the  total  income.  In  the  account  under  im- 
mediate discussion,  the  Loss  and  Gain  account  of  Illus- 
tration 10,  the  total  income  is  $2000,  while  the  total  ex- 
penses amount  to  $1000,  the  latter  being  the  sum  of  the 
first  three  debit  items  of  the  account. 

Closing  Loss  and  Gain  into  Proprietor's  Capital.— The 
Loss  and  Gain  account  has  been  defined  as  an  account  cre- 
ated temporarily  at  the  close  of  a  year  to  serve  as  a  sum- 
mary for  expenses  and  incomes.  Its  temporary  nature  is 
quite  evident  when  it  is  learned  that  Mr.  Arnold's  Loss  and 
Gain  account  is  closed  into  Mr.  Arnold's  Capital  account 
almost  as  soon  as  it  has  received  all  its  entries  from  other 
accounts.  The  closing  of  the  Loss  and  Gain  account  brings 
up  a  point  that  was  not  raised  in  connection  with  the  clos- 
ing of  the  several  expense  and  income  accounts.  In  their 
cases  any  specific  account  had  entries  on  only  one  side,  at 
the  time  of  closing  it.  In  the  Loss  and  Gain  account  there 
are  entries  on  both  the  debit  and  credit  sides.  However, 
only  one  entry  is  made  in  the  Loss  and  Gain  account  to 


r^ 


'i 


52 


FARM  ACCOUNTING 


close  it.  In  this  specific  instance,  the  credits  exceed  the 
debits  by  $1000,  so  it  is  necessary  to  transfer  $1000  to  the 
credit  side  of  Mr.  Arnold's  Capital  account.  It  is  not  re- 
quired that  the  total  debits  should  be  transferred  to  the 
debit  side  and  the  total  credits  to  the  credit  side  of  Mr.  . 
Arnold's  Capital  account.  A  transfer  of  the  difference 
between  the  debits  and  credits  closes  the  Loss  and  Gain 
account  just  as  effectively  and  shows  the  net  results  in  a 
more  concentrated  form  in  Mr.  Arnold's  account.  In  the 
case  at  hand  the  result  is  a  net  gain.  If  the  result  had 
been  a  net  loss,  the  debits  in  the  Loss  and  Gain  account 
would  have  exceeded  the  credits  before  closing.  The  en- 
try transferring  the  loss  would  then  have  been  a  credit 
to  Loss  and  Gain  and  a  debit  to  Arnold's  Capital  account. 

After  closing  the  nominal  accounts  into  Capital  account 
through  Loss  and  Gain  account  any  balances  remaining 
in  the  ledger  are  balances  of  accounts  representing  re- 
sources and  liabilities.  A  statement  of  resources  and  lia- 
bilities, then,  can  be  prepared  quite  easily  from  the  bal- 
ances remaining  in  the  ledger  after  closing  the  expense  and 
income  accounts. 

Comparison  of  Results. — From  a  study  of  Mr.  Arnold's 
Capital  account  as  it  appears  in  Illustration  8,  when  each 
expense  and  income  was  entered  on  the  debit  and  credit 
sides  respectively  as  they  occurred ;  and  from  a  further 
study  of  it  in  Illustration  10  when  only  one  entry  was 
made  in  his  account  at  the  close  of  the  year  for  the  amount 
of  the  net  gain,  one  may  draw  some  conclusions  concern- 
ing the  results.  In  brief,  the  result  is  the  same.  Mr.  Ar- 
nold's  Capital  account  under  the  first  method  shows  a  bal- 
ance brought  down  on  March  1,  1917,  of  $5000,  which  is 
the  same  balance  brought  down  under  the  second  method. 

Continuing  the  comparison  of  Mr.  Arnold's  Capital  ac- 
counts as  reflected  in  Illustrations  8  and  10,  it  is  seen  in 
each  case  that  there  is  a  credit  entry  of  $4000  represent- 


SUBDIVISION  OF  CAPITAL  ACCOUNT 


53 


irig  his  capital  on  March  1,  1916.  Except  for  the  bal- 
ances at  the  beginning  and  at  the  close  of  the  year,  the  two 
capital  accounts  in  question  do  not  have  any  other  figures 
in  common.  The  one  in  Illustration  10  has  an  entry  of 
$1000  on  the  credit  side  under  date  of  February  28,  1917. 
This  entry  takes  the  place  of  all  the  entries  made  during 
the  year,  as  shown  in  detail  in  Illustration  8.  In  other 
words,  using  Illustration  8,  the  sum  of  all  the  credit  en- 
tries, except  the  opening  balance  of  $4000,  minus  the  sum 
of  all  the  debit  entries,  representing  decreases  in  capital, 
gives  $1000  as  a  result.  Under  this  method  all  increases 
and  decreases  in  capital  are  recorded  in  the  Capital  ac- 
count. Under  the  method  used  in  Illustration  10,  all  in- 
creases and  decreases  in  capital  are  recorded  in  specially 
named  accounts  to  indicate  the  nature  of  the  income  or 
expense.  Then  the  results  of  these  accounts  are  trans- 
ferred to  the  Capital  account  through  the  Loss  and  Gain 
account,  so  that  only  the  net  increase  in  capital  is  entered 
in  Mr.  Arnold's  Capital  account. 

This  latter  method  is  the  one  which  will  be  followed 
more  often  in  practice  and  in  subsequent  problems,  exer- 
cises and  discussions  in  this  book.  It  gives  an  opportunity 
for  analyzing  the  transactions  more  fully  in  the  ledger  as 
the  transactions  occur,  and  also  reduces  the  number  of  en- 
tries in  the  Capital  account.  Oil  the  other  hand,  when  the 
Capital  account  receives  an  entry  for  increase  or  decrease 
of  capital,  only  at  the  close  of  the  year  one  cannot  find  the 
net  capital  of  the  business  as  easily  at  any  time  as  he  can 
under  the  other  method.  This,  however,  is  a  very  minor 
objection  to  the  method,  for  one  seldom  has  occasion  to 
find  the  net  capital  of  the  business  at  any  time  except  the 
close  of  a  fiscal  year,  while  he  does  have  occasion  from 
time  to  time  to  find  the  expenses  or  incomes  of  various 
classes. 

Balance  Brought  Dowii.-~A  point  of  bookkeeping  form 


;  1 1 


m-mi~   1 


ff4 


FARM  ACCOUNTING 


SUBDIVISION  OF  CAPITAL  ACCOUNT 


55 


which  should  be  noted  carefully  is  represented  in  the  carry- 
ing down  of  the  balance  of  Mr.  Arnold's  Capital  account, 
in  both  Illustrations  8  and  10.  It  will  be  observed  that 
there  is  a  debit  entry  of  $5000,  ** balance  down,'*  on  the 
last  line  before  the  total  of  the  debits  is  recorded.  The 
credit  of  $5000  to  offset  this  is  on  the  credit  side  of  the 
same  account,  below  the  double  lines.  Thus,  the  equili- 
brium of  debits  and  credits  is  maintained.  These  en- 
tries do  not  change  the  condition  of  Mr.  Arnold's  Capital 
account.  They  merely  cause  the  net  capital  to  be  shown 
by  a  single  amount  for  the  purpose  of  beginning  a  new 
year.  The  net  capital  would  still  be  $5000  without  per- 
forming the  operations  of  addition,  drawing  single  and 
double  lines  and  the  making  of  a  debit  and  credit  of  $5000 
as  described  above.  If  these  bookkeeping  operations  or 
abbreviations  are  not  employed,  however,  it  is  necessary 
to  add  and  subtract  several  amounts  from  time  to  time  in 
order  to  find  the  net  capital.  The  double  lines  indicate 
that  everything  is  in  balance  above  them.  The  $5000 
brought  down  on  the  credit  side  below  the  lines  indicates 
that  it  is  the  net  result  of  all  the  amounts  above  the  dou- 
ble lines. 

Classification  of  Accounts. — In  the  course  of  the  com- 
parison of  results  discussed  in  the  last  several  pages  it  was 
stated,  "under  the  method  used  in  Illustration  10,  that  all 
increases  and  decreases  in  capital  are  recorded  in  specially 
named  accounts  to  indicate  the  nature  of  the  income  or 
expense.'^  These  ** specially  named  accounts"  are  closed 
into  Loss  and  Gain  account,  and  the  latter  into  Capital 
account  at  the  close  of  the  year.  As  previously  stated, 
all  the  accounts  so  closed  directly  or  indirectly  into  Capital 
account  are  known  as  nominal  accounts.  They  are  accounts 
named  to  represent  an  increase  or  decrease  of  a  specific 
nature  in  the  capital  of  the  business.  They  do  not  repre- 
sent accounts  of  resources  or  liabilities.    Nominal  accounts 


are  often  called  loss  and  gain  accounts,  since  practically 
every  nominal  account  results  in  a  loss  or  gain. 

There  are  two  generally  recognized  classifications  of  ac- 
counts, the  first  of  which  is  based  upon  the  nature  of  the 
subject  matter  of  the  transaction,  and  the  second  upon  the 
ultimate  use  of  the  balance  of  the  account  in  the  financial 
statements. 

CLASSIFICATION  1 

Based  on  the  Subject  Matter 

A.  Personal 

B.  Impersonal 

1.  Real 

2.  Nominal 

CLASSIFICATION  2. 
Based  on  the  Ultimate  Use  of  the  Account  Balances 

A.  Balance  Sheet 

1.  Resources 

2.  Liabilities 

B.  Loss  and  Gain 

1.  Expense 

2.  Income 

In  either  case,  the  principal  use  of  the  classification  is  to 
make  easier  the  rules  governing  debits  and  credits  and  the 
treatment  of  account  balances.  In  general  a  rule  which 
applies  to  one  account  will  apply  to  all  others  in  its  group. 
Accounts  are  usually  arranged  in  the  ledger  in  groups,  as 
presented  in  the  classification.  That  is,  all  resources  to- 
gether, all  liabilities  together,  and  so  on. 

Some  principles  have  been  developed  in  the  preceding 
pages  for  debiting  and  crediting  the  various  types  of  ac- 
counts shown  in  the  two  classifications.  These  principles 
will  apply  in  a  more  or  less  modified  form  in  the  treatment 
of  accounts  in  subsequent  chapters. 

Personal  acccmits  record  transactions  with  individuals, 


56 


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SUBDIVISION  OF  CAPITAL  ACCOUNT 


57 


I  ■ 


firms  or  corporations.  They  may  he  considered  as  resources 
or  liabilities,  depending  on  the  nature  of  the  balance  of 
the  account. 

A  real  account  is  one  that  records  transactions  relating 
to  resources  and  liabilities  other  than  personal  accounts. 

The  other  classes  of  accounts  have  been  discussed  in 
connection  with  the  financial  statements.  The  ledger  ac- 
counts have  been  presented  in  accordance  with  Classifica- 
tion 2,  above. 

ILLUSTRATIVE  PROBLEMS 

1.  Using  ordinary  ledger  paper,  create  the  necessary  nominal 
and  other  accounts  and  express  therein  the  debits  and  credits 
necessary  to  interpret  the  following  transactions  in  the  ledger 
of  Mr.  Woods.  (Sufficient  space  is  to  be  allowed  for  each  ac- 
count to  permit  of  its  use  in  problem  3,  below.) 

Mar.  1,  1916,  Geo.  Woods  starts  keeping  his  accounts  in  a  sys- 
tematic way,  and  accordingly  values  his  possessions  as  follows: 
Cash  $600,  owing  by  Thos.  Carey  $100,  cattle  $800,  poultry  $200, 
swine  $900,  horses  $1200,  equipment  $600,  land  $8000,  buildings 
$5500.    He  owes  $8000  on  a  mortgage  note. 

Apr.  1,  Paid  cash  for  labor  $25. 

May  1,  Paid  $240  for  six  months'  interest  on  mortgage  note. 

May  6,  Received  $100  from  Thos.  Carey  in  settlement  of  his 

account. 

May  7,  Sold  eggs  for  $5  cash. 
May  8,  Paid  cash  for  labor  $25. 
June  1,  Paid  cash  for  labor  $25. 
June  8,  Paid  for  miscellaneous  items  $15. 
June  10,  Sold  some  fruit  for  cash  $10. 
July  1,  Sold  some  hay  for  $180  cash. 
July  3,  Paid  cash  for  labor  $45. 
July  6,  Paid  $85  for  some  new  equipment. 
July  21,  Paid  for  miscellaneous  items  $25. 
Aug.  4,  Paid  cash  for  labor  $60. 
Aug.  28,  Received  $500  cash  for  oats. 
Sept.  1,  Paid  cash  for  labor  $50. 


Sept.  6,  Received  $25  from  sale  of  fruit  and  vegetables. 

Sept.  20,  Sold  cabbage  for  $400  cash. 

Oct.  1,  Paid  cash  for  labor  $25. 

Nov.  1,  Paid  cash  for  labor  $25. 

Nov.  1,  Paid  for  miscellaneous  items  $30. 

Nov.  1,  Sold  all  the  swine  for  $900. 

Nov.  1,  Paid  $240  for  six  months'  interest  on  mortgage  note. 

Nov.  1,  Paid  $1800  as  part  payment  on  mortgage  note. 

Nov.  28,  Sold  some  corn  for  $700  cash. 

Dec.  1,  Paid  cash  for  labor  $30. 

Jan.  3,  1917,  Paid  for  miscellaneous  items  $35. 

Feb.  15,  Paid  for  taxes  $80. 

Feb.  21,  Paid  for  fire  insurance  premium  $20. 

2.  From  the  ledger  accounts  created  in  problem  1  above, 

(a)  Close  the  nominal  accounts  into  Loss  and  Gain  account. 

(b)  Close  Loss  and  Gain  account  into  Capital  account. 

(c)  Bring  down  the  balances  of  Capital  and  Cash  accounts  on 
March  1,  1917. 

(d)  Prepare  a  Statement  of  Resources  and  Liabilities  as  of 
February  28,  1917,  and  a  Loss  and  Gain  Statement  for  the  year 
ended  February  28,  1917,  noting  that  the  latter  is  practically  a 
copy  of  the  Loss  and  Gain  account  in  such  a  simple  case  as  this. 

Note.^Closing  an  account  or  bringing  down  a  balance  always 
includes  the  drawing  of  the  necessary  single  and  double  lines. 

(e)  Compare  the  ledger  accounts  and  statements  with  the 
ones  prepared  for  Illustrative  Problems  2  and  3  of  Chapter  II. 
Be  prepared  to  discuss  orally  any  points  of  similarity  or  dif- 
ference noted.  (The  instructor  should  lead  a  discussion  of  these 
points  in  class  while  students  have  all  papers  to  examine.) 

3.  Using  the  same  ledger  as  in  problem  1  above,  Mr.  Woods 
continues  his  business  for  the  second  fiscal  year  beginning  March 
1,  1917.^  You  are  asked  to  record  the  year's  transactions  which 
follow : 

*.The  entries  in  the  second  year  are  made  in  the  same  accounts  that 
were  used  in  the  first  year,  nominal  accounts  receiving  their  next 
entries  on  the  first  line  below  the  double  lines  made  in  closing.  Re- 
source and  Liability  items  are  entered  in  the  same  way  they  would 
have  been,  had  a  new  period  not  begun. 


58 


FARM  ACCOUNTING 


SUBDIVISION  OF  CAPITAL  ACCOUNT 


59 


March  10,  1917,  Paid  cash  for  miscellaneous  items  $16. 

April  1,  Paid  cash  for  labor  $25. 

May  1,  Paid  $186  for  six  months'  interest  on  mortgage  note. 

May  16,  Sold  eg^  for  cash  $8. 

June  1,  Paid  cash  for  labor  $40. 

June  25,  Sold  fruit  and  garden  truck  for  $17  cash. 

July  2,  Sold  some  hay  for  $16G  cash. 

July  5,  Bought  a  draft  horse  for  $200  cash. 

Aug.  1,  Paid  $45  for  labor. 

Aug.  26,  Received  $600  cash  for  oats. 

Sept.  1,  Paid  $48  for  labor. 

Sept.  22,  Received  $27  from  the  sale  of  fruit  and  vegetables. 

Sept.  30,  Sold  cabbage  to  Theodore  Wheat  on  account  for 

$520. 

j^ote.—^'On  account"  means  that  no  cash  passed  hands.  Ac- 
cordingly Mr.  Wheat  is  to  be  debited  with  the  $520.  He  will  be 
credited  when  he  pays. 

Nov.  1,  Paid  cash  for  labor  $28. 

Nov.  1,  Paid  $186  for  six  months'  interest  on  mortgage  note. 

Nov.  1,  Paid  $500  as  part  payment  on  mortgage  note. 

Nov.  25,  Received  $300  cash  from  Theodore  Wheat  to  apply 
on  his  account. 

Dec.  16,  Sold  some  com  for  $530  in  cash. 

Dec.  17,  Paid  $48  for  labor. 

Dec.  20,  Bought  some  shotes  for  $800  cash. 

Jan.  6,  1918,  Paid  for  miscellaneous  items  $40. 

Jan.  22,  Received  $100  cash  from  Theodore  Wheat  to  apply 
on  account. 

Feb.  16,  Paid  taxes  $88. 

Feb.  21,  Sold  some  hay  for  $150  cash. 

4.  From  the  accounts  prepared  as  directed  in  problem  3  above, 

(a)  Close  the  nominal  accounts  into  Loss  and  Gain  account. 

(b)  Close  Loss  and  Gain  account  into  Capital  account. 

(c)  Bring  down  the  balance  of  Capital  and  Cash  accounts  on 
March  1,  1918. 

(d)  Prepare  a  Statement  of  Resources  and  Liabilities  as  of 

February  28,  1918. 

(e)  Compare  the  Loss  and  Gain  account  and  the  Statement  of 


Resources  and  Liabilities  with  the  ones  prepared  for  Mr.  Wood's 
transactions  of  the  preceding  year,  as  per  instructions  of  prob- 
lems 1  and  2  above. 

5.  Make  the  necessary  entries  in  nominal  and  other  accounts 
for  the  transactions  given  below,  using  the  necessary  resource 
and  liability  accounts  and  the  following  nominal  accounts :  Board 
and  Room,  Books  and  Stationery,  Laundry  and  Toilet,  Amuse- 
ments and  Refreshments,  General  Expense,  Miscellaneous  In- 
come, and  Allowance  (being  the  income  account  to  show  amounts 
received  from  home). 

September  18,  1916,  Eddie  Block  enrolling  as  a  student  in 
an  agricultural  college,  begins  to  keep  his  accounts  under  double 
entry^  system.  He  accordingly  opens  his  ledger  accounts  by 
recording  his  capital  of  $25  which  he  saved  during  the  summer. 

September  19,  1916,  paid  matriculation  fee  $10,  semester  dues 
$12,  and  laboratory  fees  $1.50. 

Sept.  20,  Received  $30  from  home. 

Sept.  20,  Paid  25  cents  for  a  campus  ticket  and  50  cents  for 
a  swimming  pool  ticket. 

Sept.  20,  Paid  $7.60  for  textbooks  and  stationery. 

Sept.  22,  Paid  $6  for  athletic  association  membership  and  sea- 
son tickets. 

Sept.  22,  Paid  room  rent  for  one  month  $12. 

Sept.  23,  Paid  $1  for  college  Y.  M.  C.  A.  membership. 

Sept.  23,  Paid  $2.50  for  subscription  to  student  daily  publica- 
tion. 

Sept.  23,  Paid  for  laundry  48  cents  and  for  shine  10  cts. 
Sept.  25,  Paid  for  car  fare,  show  and  refreshments,  60  cts. 
Sept.  25,  Borrowed  $5  from  "Slim"   Small. 
Sept.  26,  Received  $1.50  for  miscellaneous  jobs. 
Sept.  28,  Joined  the  hospital  association  and  paid  $1  dues. 
Sept.  29,  Paid  $1  for  pressing  and  cleaning. 
Sept.  30,  Attended  football  game  with  Bertha  and  paid  $1  for 
her  ticket  and  60  cts.  for  car  fare  and  refreshments. 

*  Double  entry  system  involves  primarily  the  expression  of  equal 
debits  and  credits  for  each  transaction — the  system  used  in  explana- 
tions in  this  text.  Single  entry  system  does  not  require  such  equili- 
brium of  debits  and  credits. 


60 


FARM  ACCOUNTING 


Oct.  1,  Spent  50  cents  at  church. 

Oct.  2,  Received  $30  from  home. 

Oct.  3,  Paid  $10  for  neckties,  shirts,  socks  and  a  hat  (charge 
"laundry  and  toilet"). 

Oct.  3,  Paid  two  weeks'  board  $9. 

Oct.  3,  Took  "Slim"  and  "Zeke"  to  a  show,  spending  $1.50. 

Oct.  4,  Paid  $2  for  books  and  stationery. 

Oct.  6,  Paid  50  cents  for  hair  cut  and  shave,  10  cents  for 
shine,  and  $1  for  pressing  suit. 

Oct.  6,  Attended  a  dance  with  Ethel  and  spent  $2.40,  includ- 
ing refreshments  and  car  fare. 

Oct.  9,  Spent  $3.50  while  home  with  "Zeke"  over  the  week-end. 

Oct.  10,  Received  a  letter  from  home  saying  they  would  send 
me  $30  the  first  of  next  week. 

Oct.  10,  Borrowed  $5  from  "Zeke"  Sanborn. 

Oct.  13,  Paid  $4  for  a  pair  of  shoes. 

Oct.  14,  Took  Ethel  to  the  football  game,  spending  $1.70. 

Oct.  16,  Received  a  check  from  home  for  $30. 

Oct.  17,  Paid  "Slim"  and  "Zeke"  each  the  $5  I  owed  them. 

(a)  Close  the  expense  and  income  accounts  into  Loss  and 
Gain,  and  the  latter  into  the  Capital  account,  bringing  down  the 
balance  of  the  latter. 

(b)  Prepare  a  Statement  of  Resources  and  Liabilities  as  of 
October  17,  1916. 

REVIEW  QUESTIONS 

1.  What  two  general  bookkeeping  methods  are  there  for  show- 

ing increases  and  decreases  in  capital? 

2.  Which  one  is  more  often  used  in  practice? 

3.  Which  one  involves  the  use  of  the  greater  number  of  accounts? 

4.  When  all  increases  and  decreases  of  capital  are  recorded  in 

one  account,  how  is  the  net  capital  of  the  business  deter- 
mined at  the  close  of  the  year? 

5.  When   increases   and   decreases   of  capital   are   recorded  in 

several  appropriately  named  accounts  how  is  the  net  capi- 
tal of  the  business  determined? 


SUBDIVISION  OF  CAPITAL  ACCOUNT 


61 


6.  Does  the  Capital  account  show  the  same  net  capital  under 

either  method?     Why? 

7.  Name  five  accounts  that  have  been  used  to  record  increases 

and  decreases  in  capital. 

8.  What  is  an   Expense  account?     An   Income  account?     A 

Nominal  account? 

9.  What  is  the  purpose  of  the  Loss  and  Gain  account? 

10.  Discuss  its  relation  to  the  several  expense  and  income  ac- 

counts. 

11.  Discuss  its  relation  to  the  Proprietor's  Capital  account. 

12.  Describe  the  bookkeeping  process  of  transferring  balances 

from  the  expense  accounts  to  Loss  and  Gain  account. 

13.  Describe  the  process  of  transferring  balances  from  the  in- 

come accounts  to  Loss  and  Gain  account. 

14.  Describe  the  process  of  transferring  the  balance  from  the 

Loss  and  Gain  account  to  the  Capital  account. 

15.  Why  are  the  entries  mentioned  in  questions  12,  13  and  14 

called  closing  entries? 

16.  What  do  the  horizontal  double  lines  mean  in  an  account?    The 

single  lines? 

17.  What  is  the  difference  between  a  Loss  and  Gain  account  and 

a  Loss  and  Gain  Statement? 

18.  Under  the  second   method   of   recording  increases   and   de- 

creases in  capital,  why  is  the  balance  transferred  from 
Loss  and  Gain  account  exactly  equal  to  the  net  results 
of  the  Capital  account  entries  of  the  year  under  the  first 
method  ? 

19.  Describe  the  process  of  bringing  down  the  balance  of  Capital 

account. 

20.  Why  is  it  customary  to  bring  down  the  balance? 

21.  How  is  the  equilibrium  of  debits  and  credits  maintained  in 

bringing  down  the  balance? 

22.  What  do  the  double  lines  mean  in  the  Capital  account  in  this 

connection  ? 

23.  (rive  two  classifications  of  accounts. 

24.  Of  what  value  is  a  classification  of  accounts? 

25.  What  is  a  personal  account?    A  real  account? 

26.  Name  two  of  each. 


I 


CHAPTER  IV 
THE  TRIAL  BALANCE 


Explanation  of  Trial  Balance  Terms.— ^  trial  hdlance 
is  a  list  of  debit  and  credit  balances  of  all  ledger  accounts. 
The  name  is  also  applied  to  a  list  of  debit  and  credit  totals 
of  ledger  accounts,  although  the  latter  also  bears  the  name 
proof  sheet. 

The  process  of  listing  the  balances  or  totals  from  the 
ledger  accounts  into  the  trial  balance  book  or  trial  balance 
sheet  is  known  as  ''taking  off  a  trial  balance.'' 

The  trial  balance  is  said  to  be  ''in  balance"  if  the  sums 
of  the  debit  and  credit  columns  are  equal.  If  the  trial 
balance  is  in  balance,  the  ledger  is  said  to  be  in  balance, 
and  broadly  speaking,  the  books  are  said  to  be  in  balance. 

The  trial  balance  is  said  to  be  ''off''  if  the  sums  of  the 
debit  and  credit  columns  are  not  equal.  Likewise,  if  the 
trial  balance  is  off  the  ledger  is  said  to  be  ''off''  or  "out 
of  balance." 

Purpose  of  the  Trial  Balance.— The  trial  balance  is  pre- 
pared for  the  purpose  of  testing  the  accuracy  of  the  en- 
tries in  the  ledger  and  for  supplying  amounts  to  be  used 
in  preparing  financial  statements.  It  has  been  stated  as 
a  principle  of  bookkeeping,  that  each  transaction  requires 
a  debit  and  a  credit  entry  of  equal  amounts  in  the  ledger. 
It  follows  that  if  all  transactions  are  thus  correctly  re- 
corded, the  sum  of  all  debits  in  the  ledger  should  equal 
the  sum  of  all  credits.  From  this  is  derived  the  principle 
that  the  sum  of  all  debit  balances  should  equal  the  sum  of . 

62 


THE  TRIAL  BALANCE 


63 


all  credit  balances,  if  debits  and  credits  for  each  trans- 
action have  been  equal. 

Trial  Balance  Proves  What? — This  does  not  mean  that 
if  a  trial  balance  is  in  balance  it  is  an  absolute  proof 
of  accuracy  in  recording  transactions.  It  merely  indicates 
that  debits  and  credits  of  equal  amount  have  been  entered. 
There  are  several  classes  of  errors  that  might  be  made  with- 
out throwing  the  trial  balance  out  of  balance. 

1.  For  example,  if  one  neglects  to  record  a  transaction 
at  all,  there  is  no  credit  entry  and  no  debit  entry  made. 
Consequently,  the  ledger  remains  in  balance,  but  the  ac- 
counts do  not  reflect  the  true  condition  or  progress  of 
affairs. 

2.  Also,  if  one  enters  the  wrong  amount  on  both  the  debit 
and  credit  sides  it  does  not  throw  the  trial  balance  off. 
For  example,  if  he  pays  $185  for  a  horse,  but  in  error 
debits  Horse  account  and  credits  Cash  for  $158,  he  does 
not  throw  his  ledger  out  of  balance,  but  neither  the  Horse 
nor  Cash  accounts  show  the  facts. 

An  error  of  this  sort  would  be  found  in  verifying  the 
cash  balance.  Periodically,  the  amount  of  cash  on  hand 
and  in  the  bank  is  calculated.  It  should  agree  with  the 
balance  of  the  Cash  account.  If  $185  is  parted  with  but 
the  Cash  account  shows  only  $158  paid  out,  it  makes  the 
cash  "short,"  but  does  not  affect  the  trial  balance  as  long 
as  the  Horse  account  is  debited  with  the  same  amount,  $158. 
If,  however,  Horse  account  is  debited  with  the  correct 
amount,  $185,  while  Cash  account  is  credited  with  $158, 
both  the  trial  balance  and  the  Cash  account  are  off.  If 
the  Horse  account  is  debited  with  the  wrong  amount,  $158, 
and  Cash  account  credited  with  $185,  the  trial  balance  i& 
off,  but  the  Cash  account  is  in  agreement  with  the  cash 
on  hand  and  in  the  bank. 

3.  If  one  makes  an  entry  in  the  wrong  account  but  on 
the  correct  side  of  the  ledger,  it  does  not  throw  the  trial 


64 


FARM  ACCOUNTING 


r 

,1 


balance  off.  That  is,  if  he  pays  $185  for  a  horse,  debiting 
Cattle  account,  in  error,  and  crediting  Cash,  the  trial  bal- 
ance is  in  balance  and  the  Cash  account  is  correct,  but 
neither  the  Horse  nor  Cattle  account  shows  the  correct  re- 
sult. 

As  a  means  of  supplying  amounts  to  be  used  in  financial 
statements,  the  trial  balance  is  very  useful.  The  balances 
recorded  in  the  trial  balance  present  figures  in  a  very  con- 
cise and  convenient  form,  for  use  in  the  Statement  of  Re- 
sources and  Liabilities  and  the  Loss  and  Gain  Statement. 

Time  of  Taking  a  Trial  Balance.— A  trial  balance  is 
taken  usually  at  the  close  of  a  month  or  year  after  all  the 
transactions  are  entered  in  the  ledger.  It  is  possible  and 
sometimes  practical  in  commercial  bookkeeping  to  take  a 
trial  balance  at  the  close  of  each  day's  business.  It  can 
be  taken  at  any  time  during  any  day  after  all  debits  and 
credits  have  been  made  in  the  ledger  for  all  transactions 
completed  up  to  that  time.  It  is  taken  before  attempting 
to  prepare  financial  statements,  but  the  statements  can  be 
prepared  without  taking  a  trial  balance  if  desired,  as  has 
been  illustrated  in  the  preceding  chapters.  The  trial  bal- 
ance shows  the  condition  of  the  ledger  accounts  at  any 
given  moment  of  time.  No  attempt  should  be  made  to 
take  a  trial  balance,  however,  until  it  is  known  with  rea- 
sonable certainty  that  all  transactions  have  been  reflected 
in  the  ledger  by  proper  debit  and  credit  entries  of  equal 
amounts. 

In  farm  bookkeeping,  a  trial  balance  might  be  taken  at 
any  time,  but  it  is  considered  necessary  to  take  it  only 
at  the  close  of  a  fiscal  year,  since  the  amounts  are  not 
needed  oftener  for  financial  statements,  and  transactions 
are  not  numerous  enough  to  cause  many  errors.  When 
transactions  are  numerous  a  trial  balance  taken  at  short 
intervals  enables  one  to  find  existing  errors  before  their 
location  becomes  too  burdensome. 


THE  TRIAL  BALANCE 


65 


Procedure  in  Taking  a  Trial  Balance. — Having  decided 
when  the  trial  balance  is  to  be  taken,  there  are  three  steps 
to  be  followed  in  taking  it. 

1.  The  balance  of  each  account  in  the  ledger  is  calcu- 
lated and  recorded  very  lightly  in  pencil  in  the  explana- 
tion column  for  reference  on  the  side  of  the  account  that 
is  larger. 

2.  The  balance  of  each  account  is  listed  in  its  proper 
column  in  the  trial  balance. 

3.  The  two  columns  of  the  trial  balance  are  added  and 
it  is  seen  that  the  two  totals  are  equal. 

Finding  the  Balance  of  an  Account.  — In  order  to  find 
the  balance  of  an  account,  the  debit  side  is  added  and  the 
total  is  expressed  lightly  with  a  sharp  pencil  immediately 
under  the  last  debit  entry,  as  shown  in  Illustration  12. 
Then  the  credit  side  is  added,  amd  the  total  recorded  in  a 
similar  manner  on  the  credit  side.  The  difference  is  found 
between  the  debit  and  credit  totals  thus  recorded  in  pencil. 
If  the  debit  total  exceeds  the  credit  total,  the  amoumt  of 
excess,  commonly  called  the  debit  balance,  is  written  in 
pencil  in  the  explanation  column  of  the  debit  side  of  the 
account,  {See  Illustration  12,  Cash  Account.)  If  the  credit 
total  exceeds  the  debit,  the  balance  is  written  in  pencil  in 
the  explanation  column  of  the  credit  side  of  the  account. 
If  there  are  entries  on  only  one  side  of  the  account  it  is 
not  necessary  to  show  the  balance  in  the  explanation  col- 
umn. In  such  a  case  the  pencil  total  is  also  the  balance  of 
the  account,  and  it  is  used  in  the  trial  balance  as  such. 

This  process  is  performed  in  connection  with  every 
account  in  the  ledger.  If  the  debit  and  credit  pencil  totals 
are  equal  in  an  account,  no  amount  is  written  in  either 
explanation  column.  The  account  is  in  balance,  and  is 
ready  to  be  ruled  off  with  a  single  line,  total  amount  and 
double  lines  on  both  sides  of  the  account. 


66 


FARM  ACCOUNTING 


THE  TRIAL  BALANCE 


67 


f 


Listing  the  Balance  in  the  Trial  Balance.— The  ledger 
is  now  in  condition  for  the  second  step  in  the  procedure. 
For  this  purpose,  paper  is  used  with  two  money  columns 
to  the  right  as  in  simple  journal  paper.     The   heading 
*' Trial  Balance/'  followed  by  the  date  on  which  it  is  taken, 
is  placed  at  the  top  of  the  paper.    On  the  first  line  of  the 
explanation  column  to  the  left  is  written  the  name  of  the 
first  account  in  the  ledger  that  has  a  balance  indicated.    It 
makes  no  difference  whether  the  balance  is  on  the  debit  or 
credit  side,  it  is  entered  in  the  trial  balance  in  the  order 
in  which  it  appears  in  the  ledger.    If  the  pencil  balance  is 
written  in  the  explanation  column  on  the  debit  side  of  the 
account,  it  is  entered  in  the  debit  column  of  the  trial  bal- 
ance on  the  same  horizontal  line  with  the  name  of  the 
account.     In  other  words,  if  the  debit  side  of  Labor  ac- 
count, for  example,  exceeds  the  credit  side  by  $300,  that 
amount  is  to  be  placed  in  the  debit  column  of  the  trial 
balance  on  the  same  horizontal  line  with  the  word  *' labor/' 
The  second  horizontal  line  is  used  similarly  for  recording 
the  balance  of  the  second  account  in  the  ledger.     This 
process  is  continued  until  all  ledger  accounts  with  balances 
have  been  treated  in  like  manner. 

Adding  and  Proving  the  Trial  Balance.— The  third  step 
in  taking  the  trial  balance  is  easily  accomplished  after  the 
balances  have  been  entered  on  the  trial  balance  sheet.  The 
totals  of  the  debit  and  credit  columns  are  placed  at  the 
foot  of  the  respective  columns  aftei  having  drawn  the  cus- 
tomary single  line  to  indicate  the  process  of  addition.  If 
these  debit  and  credit  totals  are  equal,  double  lines  are 
drawn  under  them,  as  in  closing  an  account.  Ascertaining 
that  debit  and  crpdit  totals  are  equal  is  called  *' proving 
the  trial  balance.''.  If  the  two  totals  are  not  equal  an 
error  exists,  and  the  double  lines  should  not  be  drawn 
beneath  the  totals.     The  procedure  in  looking  for  errors 


is  discussed  in  Chapter  V  under  the  title,  **  Preventing 
and  Finding  Errors." 

Trial  Balance  Details  Illustrated. — Illustration  12  shows 
the  several  ledger  accounts  prepared  for  a  trial  balance, 
and  Illustration  13  shows  the  trial  balance  prepared  from 
them  according  to  the  principles  presented  in  the  several 
preceding  pages. 

ILLUSTRATION  12 
Ledger  Accounts  Prepared  for  the  Trial  Balance 

Mr.  Arnold's  Capital 


1916 

Mar.    1  Capital  invest- 
ed   $4000 


Rent 


1917 

Feb.  21  Cash. 


$400 


Labor 


1916 

Mar.  31  Cash 
Apr.  30 
May  31 
June  30 
July  31 
Aug.  31 
Sept.  30 
Oct.  31 
Nov.  30 


30 
30 
30 
30 
60 
30 
30 
30 
30 

500.00 


68 


FARM  ACCOUNTING 

General  Expense 


1916 

Mar.  30  Cash  (Interest) .  6 

Mar.  31  "    20 

Apr.  16  "  (Ins.  and 

Taxes) . .  60 

May  20  "    10 

Sept.  10  " 25 

Sept.  16  "    40 

Oct.  31  "    25 

Dec.  10  "  (Interest).  42 

Dec.  20  "    32 

1917 

Jan.  31  "    20 

Feb.  20  "    20 


SOOJOO 


Milk 


1916 

Apr.  leCash $40 

May  16    "    60 

June  16    "    65 

July  16    "    50 

Aug.  16    "    20 

Sept.  16    "    25 

Oct.  16    "    25 

Nov.  16    "    15 

300.00 


Corn 


1916 

Dec.  16Casli $1200 


Oats 


1916 

Aug.  18  Cash 


400 


THE  TRIAL  BALANCE 


69 


Miscellaneous  Income 


Cash 


1916 

June  28  Cash  (Fruit  & 

Garden  truck)   $20 
Oct.     7  Cash  (Fruit  & 

Garden  truck)     60 
Nov.  18  Cash  (Garden 

truck) 20 


1916 

Mar.    1  On  hand $1000 

Apr.  16Milk 40 

May  16    "    60 

June  16     "    65 

June  28  Fruit  and  Gar- 
den truck 20 

July  16Milk 50 

Aug.  16    "    20 

Aug.  ISOats 400 

Sept.  10  Milk 25 

Oct.     7  Garden  truck ...  60 

Oct.   16Milk 25 

Nov.  16    "    15 

Nov.  18  Garden  truck ...  20 

Dec.    6  Com looo  1200 

3000 


1916 

Mar.  30  Note  Payable .    $300 

Mar.  30  Interest 6 

Mar.  31  Labor 30 

Mar.  31  General  Expense  20 

Apr.  16  Ins.  and  Taxes  60 

Apr.  30  Labor 30 

May  20  General  Expense  10 

May  31  Labor 30 

June  30  Labor 30 

July  31  Labor 60 

Aug.  31  Labor 30 

Sept.  10  General  Expense  25 

Sept.  16   "      "  40 

Sept.  30  Labor 30 

Oct.  31  Labor 30 

Oct.  31  General  Expense  25 

Nov.  30  Labor 30 

Dec.  10  Mortgage  Pay- 
able        700 

Dec.  10  Interest 42 

Dec.  20  General  Expense  32 

1917 

Jan  31  General  Expense  20 

Feb.  20   "     «  20 

Feb.  21  Rent 400 

gooo 


70 


FARM  ACCOUNTING 


Mr,  Bell 


1916 

Mar.    1  Balance  due $500 


Horses 


1916 

Mar.    1  On  hand  (12) . . .     1600 


CatUe 


1916 

Mar.    1  On  hand  (20)...    1100 


Equipment 


1916 

Mar.    1  On  hand , 


$800 


Mortgage  Payable 


1916 

Dec.  10  Cash  paid. 


$700 


1916 

Mar.    1  Nat'l     Imple- 
ment Co...    $700 


Notes  Payable 


1916 

Mar.  30  Cash  paid 


$300 


1916 

Mar.    1  First  National 

Bank  (90  da.)    $300 


THE  TRIAL  BALANCE 


71 


ILLUSTRATION  13 
Trial  Balance  Feb.  28, 1917 

Mr,  Arnold's  Ledger 


Dr. 

Cr. 

Mr.  Arnold's  capital 

$400 
300 
300 

1000 

500 

1600 

1100 

800 

$4000 

Rent 

Labor 

General  Expense 

Milk 

300 

1200 

400 

100 

Com 

Oats 

Miscellaneous  income 

Cash 

Mr.  Bell 

Horses 

Cattle 

Equipment 

« 

$6000 

$6000 

Trial  Balance  Before  and  After  Closing.— The  trial  bal- 
ance in  Illustration  13  is  called  a  trial  balance  before  clos- 
ing. This  means  that  it  is  a  list  of  the  balances  of  the 
ledger  accounts  as  they  appeared  immediately  after  mak- 
ing the  entries  for  the  last  business  transaction  on  the  day 
of  the  trial  balance,  Feb.  28,  1917.  Occasion  of'ten  arises 
for  taking  a  trial  balance  after  closing.  In  such  cases,  the 
trial  balance  is  a  list  of  the  balances  of  the  ledger  accounts 
as  they  appear  after  closing  the  expense  and  income  ac- 
counts into  the  Capital  account  through  Loss  and  Gain 
account.  If  the  term  *Hrial  balance''  is  used  without  qual- 
ification it  always  means  ** trial  balance  before  closing." 


FARM  ACCOUNTING 


Using  the  accounts  in  Illustration  12,  the  trial  balance 
after  closing  would  appear  as  in  Illustration  14. 

ILLUSTRATION  14 
Trial  Balance  After  Closing  Feb.  28, 1917 

Mr.  Arnold's  Ledger 


3  canital 

Dr. 

Cr. 

Mr.  Arnold 'i 

$1000 

500 

1600 

1100 

800 

$5000 

Cash 

Mr.  Bell         

Horses 

Cattle  

EauiDment .      

$5000 

$5000 

By  comparing  this  trial  balance  with  the  one  before 
closing  (Illustration  13)  it  is  seen  that  in  Illustration  14 
the  Capital  account  is  greater  and  the  nominal  accounts 
do  not  appear,  while  the  accounts  with  the  resources  are 
the  same  as  in  the  trial  balance  before  closing.  In  other 
words,  the  trial  balance  after  closing  contains  only  the 
items  that  appear  in  the  Statement  of  Resources  and  Lia- 
bilities. In  fact,  in  simple  cases,  the  trial  balance  after 
closing  can  be  used  as  a  substitute  for  the  Statement  of 
Resources  and  Liabilities.  The  only  difference  between 
them  is  in  the  form.  This  can  be  seen  from  a  comparison 
of  the  trial  balance  after  closing  Illustration  14  with  the 
Statement  of  Resources  and  Liabilities  of  Illustration  6. 
Both  are  prepared  direct  from  the  same  set  of  ledger 
accounts. 

Preparation  of  Statements  from  Trial  Balance. — ^As  pre- 


THE  TRIAL  BALANCE 


78 


viously  stated,  one  of  the  purposes  of  a  trial  balance  is  to 
supply  amounts  to  be  used  in  preparing  financial  state- 
ments. To  assist  in  the  preparation  of  statements,  the 
accounts  in  the  trial  balance  are  marked  with  appropriate 
letters  to  indicate  the  position  of  each  in  the  financial 
statements.  For  this  purpose  **E''  means  expense,  'T' 
income,  "R''  resource  and  ''L'*  liability.  To  illustrate 
more  fully  the  preparation  of  statements  from  the  trial 
balance,  the  trial  balance  of  Illustration  13  is  reproduced 
below  with  the  appropriate  letters  properly  used. 


ILLUSTRATION  15 

Trial  Balance  Marked  for  Preparing  Statements. 

Trial  Balance,  Feb.  28,  1917,  Mr.  Arnold 


L  Mr.  Arnold's  capital . 

E  Rent 

E  Labor 

E  General  Expense 

I  Milk 

I  Corn 

I  Oats 

I  Miscellaneous  income 

RCash 

RMr.BeU 

R  Horses 

RCattle 

R  Equipment 


$6000 


From  a  study  of  the  initials  placed  before  the  names  of 
the  accounts  it  is  seen  that  all  debit  balances  are  marked 


74 


FARM  ACCOUNTING 


CIS  expenses  or  resources  and  all  credit  balances  as  incomes 
or  liahilities. 

Using  the  items  of  Illustration  15,  the  Loss  and  Gain 
Statement  contains  on  the  left  or  debit  side  all  those  debit 
balances  marked  **E/'  and  on  the  credit  side  all  those 
balances  marked  'T'  as  in  Illustration  16.  The  balance 
is  placed  on  the  smaller  side,  in  this  case  the  debit  side, 
in  order  to  make  the  two  sides  equal.  The  balance  is  a 
gain  because  incomes  exceed  expenses. 

ILLUSTRATION  16 

Loss  AND  Gain  Statement  Prepared  from  a  Trial  Balance. 
Loss  AND  Gain  Statement  for  the  Year  Ended  Feb.  28, 

1917,  Mr.  Arnold 


Rent $400 

Labor 300 

General  Expense 300 

Balance,  net  gain 1000 

$2000 


Milk $300 

Corn 1200 

Oats 400 

Miscellaneous  Inc 100 


$2000 


The  Statement  of  Resources  and  Liabilities  as  shown  in 
Illustration  17  contains  on  the  left  or  resource  side  all 
those  debit  balances  marked  **R"  and  on  the  right  or 
liability  side,  all  those  balances  marked  ''W 

Relation  Between  Trial  Balance  and  Financial  State- 
ments.— A  further  study  of  the  trial  balance  in  Illustration 
15  in  its  relation  to  the  Loss  and  Gain  Statement  and 
Statement  of  Resources  and  Liabilities  in  Illustrations  16 
and  17,  respectively,  presents  additional  points  in  account- 
ing. All  the  items  on  the  debit  side  of  the  trial  balance 
are  placed  on  the  debit  side  of  one  of  the  statements.  All 
items  on  the  credit  side  of  the  trial  balance  are  placed  on 


THE  TRIAL  BALANCE 

ILLUSTRATION  17 


7^ 


Statement  of  Resources  and  Liabilities  Prepared  from  a 

Trial  Balance. 

Statement  of  Resources  and  Liabiuties, 
Feb.  28,  1917,  Mr.  Arnold 


Resources 

Cash $1000 

Mr.  BeU 500 

Horses leoo 

Cattle 1100 

Equipment 800 


$5000 


Liabilities 
Mr.    Arnold's 

capital  Feb. 

28,  1916 . .  .$4000 
Add  net  gain 

for  year. . .  1000 


5000 


$5000 


the  credit  side  of  one  of  the  statements.  No  other  amounts 
appear  in  the  statements  except  the  net  gain,  which  ap- 
pears on  the  debit  side  of  one  statement  and  the  credit  side 
of  the  other.  Therefore,  since  the  debit  and  credit  totals 
of  the  trial  balance  are  equal,  the  debit  and  credit  totals 
of  the  two  statements  taken  together  are  equal.  That  is, 
the  two  statements  are  in  balance.  The  $1000  balance  in 
the  Loss  and  Gain  Statement  is  transferred  to  the  State- 
ment of  Resources  and  Liabilities  in  much  the  same  way 
as  It  was  transferred  from  Loss  and  Gain  account  in  the 
ledger  to  Mr.  Arnold's  Capital  account. 

Stated  in  another  way,  the  Statement  of  Resources  and 
Liabilities  itself  contains  all  the  items  of  the  trial  balance. 
It  contains  as  separate  items  all  the  balances  indicated  in 
the  trial  balance  as  resources  or  liabilities,  and  contains  in 
one  amount  the  net  result  of  all  the  other  balances  in  the 
trial  balance.  Thus,  in  Illustration  17,  the  $1000  added 
to  Mr.  Arnold's  capital  is  the  net  result  of  all  the  trial 


alHita 


76 


FARM  ACCOUNTING 


balance  items  not  otherwise  specifically  listed  in  the  State- 
ment of  Resources  and  Liabilities.  This  net  result  is  ob- 
tained through  the  medium  of  the  Loss  and  Gain  State- 
ment. 

The  Loss  and  Gain  Statement,  then,  might  be  called 
an  analysis  of  the  one  item  in  the  Statement  of  Resources 
and  Liabilities  which  is  added  to  the  capital  to  show  the 
total  present  liability  to  the  proprietor.  It  should  be  re- 
called in  this  connection  that  the  capital  in  the  trial  bal- 
ance before  closing  (Illustration  13)  is  the  capital  at  the 
beginning  of  the  fiscal  period,  while  the  capital  in  the  trial 
balance  after  closing  (Illustration  14)  is  the  capital  at  the 
close  of  the  period,  after  transferring  to  it  the  gain  of  the 
period. 

The  amount  shown  as  capital  in  the  last  column  of  the 
Statement  of  Resources  and  Liabilities  (Illustration  17) 
is  the  same  as  the  balance  of  the  Capital  account  in  the 
trial  balance  after  closing  (Illustration  14). 

Two  Methods  of  Preparing  Finajicial  Statements. — ^As 
a  result  of  these  comparisons  between  trial  balances  and 
statements  we  find  that  there  are  two  general  methods  of 
preparing  the  financial  statements,  in  simple  cases,  after 
the  trial  balance  has  been  prepared. 

1.  The  expense  and  income  accounts  are  closed  into  the 
Capital  account  through  the  Loss  and  Gain  account,  and  a 
trial  balance  is  taken  after  closing.  The  Loss  and  Gain 
Statement  is  then  prepared  by  merely  copying  the  Loss 
and  Gain  account,  while  the  Statement  of  Resources  and 
Liabilities  is  prepared  by  copying  the  trial  balance  after 
closing  in  slightly  different  form. 

2.  Using  the  trial  balance  before  closing,  the  Loss  and 
Gain  Statement  is  prepared  and  then  the  balance  of  net 
gain  or  loss  is  used  in  the  Statement  of  Resources  and 
Liabilities  as  an  addition  to  or  subtraction  from  capital 


t 


THE  TRIAL  BALANCE 


n 


(This  is  the  method  used  in  Illustrations  15,  16,  and  17.)* 
All  other  items  in  the  Statement  of  Resources  and  Lia- 
bilities are  taken  direct  from  the  trial  balance  before  clos- 
ing. 

The  latter  method  does  not  serve  as  a  substitute  for  the 
process  of  closing  the  ledger.  It  merely  permits  of  the 
preparation  of  statements  before  closing  the  expense  and 
income  accounts  into  Capital  account.  The  closing  of  the 
ledger  is  performed  in  exactly  the  same  way  (but  not  at 
the  same  time),  regardless  of  which  method  is  used  in  pre- 
paring financial  statements.  Under  the  first  method  the 
ledger  is  closed  before  the  statements  are  made ;  under  the 
second  method  after  the  statements  are  made. 

For  farm  accounting,  the  first  method  is  advocated  be- 
cause of  the  simplicity  of  operation  when  there  are  several 
classes  of  inventories  to  be  considered.  Also,  in  farming, 
there  is  seldom  any  necessity  for  preparing  financial 
statements  for  silent  partners,  directors,  stock  hold- 
ers or  the  investing  public  as  there  is  in  commercial  en- 
terprises. 

Although  in  commercial  accounting  the  financial  state- 
ments are  prepared  on  loose  sheets  of  paper,  which  may 
or  may  not  be  filed  in  permanent  binders,  it  is  considered 
more  practical  in  farm  accounting  to  reserve  a  number  of 
pages  in  the  back  of  the  ledger  for  the  annual  state- 
ments. 


ILLUSTRATIVE  PROBLEMS 

1.  From  the  trial  balance  presented  herewith,  prepare  a  Loss 
and  Gain  Statement  for  the  year  and  a  Statement  of  Resources 
and  Liabilities  as  of  December  31,  1916. 


78  FARM  ACCOUNTING 

Trial  Balance,  December  31, 1916,  Edward  Blt 


Cash 

Notes  Receivable 

Edward  Bly  Capital  Account 
General  Expense  Account ... 

Interest 

Notes  Payable 

Mortgage  Payable 

Land 

Horses 

Cattle 

Poultry 

Equipment 

Com 

Hay 

Tobacco 

Oats 

Ed  Olson 

James  Simpson 

Labor 


Note  for  Instructor.— Solutions  of  problems  2  and  3  below 
should  be  preserved  and  used  for  comparison  later  as  indicated 
in  Illustrative  Problem  4,  Chapter  V. 

2.  From  the  transactions  given  below  follow  instructions  in 
the  order  given,  namely 

(a)  Create  the  necessary  ledger  accounts  allowing  enough  space 
for  each  account  to  receive  the  entries  of  problem  3  below. 

(b)  Take  a  trial  balance  at  February  28, 1917. 

(c)  Close  the  ledger. 

(d)  Take  a  trial  balance  after  closing. 

(e)  Prepare  a  Loss  and  Gain  Statement  for  the  year,  and  a 
Statement  of  Resources  and  Liabilities  at  the  close  of  the  year. 


THE  TRIAL  BALANCE 


79 


Mar.  1,  1916,  Frank  Rodgers  began  farming  operations  for 
the  year  with  resources  and  liabilities  as  follows:  Cash  $150, 
Notes  Receivable  $480,  owing  by  brother  Walter  Rodgers  $100, 
Equipment  $1455,  Horses  and  Mules  $1900,  Cattle  $600,  Hogs 
$500,  Poultry  $50,  Land  $7000,  Buildings  $3000,  Mortgage  Pay- 
able $4000,  Note  Payable  $200,  owing  to  a  neighbor  John  Long 
$35. 

Mar.  16,  Paid  cash  for  insurance  $55. 

Mar.  18,  Sold  some  eggs  for  $5  (credit  poultry). 

Mar.  31,  Sold  some  hogs  for  $300  cash. 

Mar.  31,  Paid  wages  in  cash,  $30. 

Apr.  5,  Paid  $65  for  miscellaneous  items. 

Apr.  6,  Sold  eggs  for  $4. 

Apr.  26,  Paid  $120  interest  on  mortgage  (debit  interest  ac 
count). 
Apr.  30,  Paid  $30  for  labor. 
Apr.  30,  Sold  eggs  for  $6. 
May  31,  Paid  $30  for  labor. 
June  15,  Sold  fruit  for  $20. 

June  16,  Received  $50  from  brother  Walter  on  account. 
June  30,  Paid  $30  for  labor. 

July  7,  Paid  for  miscellaneous  items  $15.  i 

July  7,  Sold  garden  truck  and  fruit  for  $30. 
July  31,  Paid  for  labor  $45. 
Aug.  1,  Paid  for  new  equipment  $45. 
Aug.  18,  Sold  some  spring  chickens  for  $10. 
Aug.  21,  Sold  oats  for  $400. 
Aug.  31,  Sold  wheat  for  $300. 
Aug.  31,  Paid  for  labor  $50. 
Sept.  4,  Paid  my  note  for  $200,  and  interest  $12. 
Sept.  30,  Paid  $30  for  labor. 
Oct.  8,  Paid  John  Long  $20  on  account. 
Oct.  26,  Paid  $120  interest  on  mortgage. 
Nov.  8,  Sold  timothy  hay  for  $150. 
Nov.  30,  Paid  for  labor  $40. 
Dec.  4,  Sold  corn  for  $600. 
Feb.  15,  1917,  Paid  taxes  amounting  to  $79. 


80 


FARM  ACCOUNTING 


Feb.  24,  Received  $24  interest  on  note  receivable  (credit  interest 
account). 

Feb.  28,  Disposed  of  all  hogs  for  $400  cash  and  sold  all  the 
poultry  for  $55  cash. 

Feb.  28,  Loaned  a  neighbor,  James  Lewis,  $1000,  taking  the 
latter's  promissory  note  as  security.  (Dr.  Notes  receivable, 
Cr.  Cash  $1000.) 

{Note. — The  balances  of  Hog  and  Poultry  accounts  in  the  prob- 
lem above  are  incomes.) 

3.  After  completing  the  work  of  the  year  as  outlined  in  prob- 
lem 2,  Mr.  Frank  Rodgers  asks  you  to  record  his  transactions 
for  the  succeeding  fiscal  year  and  to  follow  the  same  instruc- 
tions at  the  close  of  the  year  as  were  given  for  the  year  ended 
Feb.  28,  1917. 

His  transactions  are  as  follows: 

Mar.  10,  1917,  Sells  some  com  for  $200  cash. 

Mar.  15,  Pays  cash  for  insurance  $60. 

Mar.  31,  Pays  $25  for  wages. 

Apr.  1,  Buys  some  poultry  for  $24. 

Apr.  7,  Spends  $40  for  miscellaneous  items. 

Apr.  10,  Sells  eggs  for  $5. 

Apr.  17,  Among  the  miscellaneous  items  purchased  on  April 
7  was  some  cement  costing  $15.  It  was  found  to  be  caked  so 
is  returned  and  the  money  refunded.  (The  same  account  should 
be  credited  now  that  was  debited  at  the  time  of  purchase.  Why?) 

Apr.  26,  Pays  $120  interest  on  mortgage  note. 

Apr.  30,  Pays  $35  for  labor. 

May  16,  Sells  eggs  for  $8. 

May  31,  Pays  $32  for  labor. 

June  20,  Sells  fruit  for  $10. 

June  30,  Receives  cash  from  Walter  Rodgers  to  balance  his 
account. 

July  3,  Sells  hay  to  W.  L.  Brown  $120  on  account. 

July  24,  Receives  $18  from  sale  of  fruit  and  garden  truck. 

July  25,  Mr.  W.  L.  Brown,  to  whom  the  hay  was  sold  on* 
July  3,  calls  attention  to  an  error  in  calculating  the  amount.  It 
should  have  been  $102.  He  gives  his  check  for  $102  to  settle 
the  account.     (What  is  to  be  done  with  the  $18  difference?) 


THE  TRIAL  BALANCE 


81 


July  31,  Pays  $80  for  labor. 

Aug.  13,  Buys  some  new  equipment  for  $60  cash. 

Aug.  25,  Pays  $12  for  cement,  for  sundry  repair  work. 

Aug.  28,  Receives  $30  for  six  months*  interest  on  note  of  James 
Lewis. 

Sept.  1,  Sells  some  oats  for  $550. 

Sept.  30,  Pays  labor  $65. 

Oct.  1,  Pays  John  Long  enough  to  balance  his  account. 

Oct.  24,  Sells  some  wheat  for  $2000  cash. 

Oct.  26,  Pays  $120  for  six  months'  interest  on  mortgage  note. 

Oct.  26,  Pays  $2000  on  mortgage  note. 

Oct.  27,  Sells  his  poultry  for  $35. 

Oct.  31,  Wages  are  paid  in  cash  $30. 

Nov.  30,  Pays  for  labor  $40. 

Dec.  20,  Pays  $300  to  carpenter  for  building  a  new  shed. 

Jan.  17,  1918,  Donates  $20  to  charity. 

Feb.  24,  Receives  $24  for  one  year's  interest  on  note. 

Feb.  24,  Receives  $480  in  full  of  note  of  that  amount. 

Feb.  26,  Pays  taxes  amounting  to  $90. 

4.  Compare  the  financial  statements  prepared  in  problem  3 
with  those  prepared  in  problem  2.  Be  ready  for  an  oral  or 
written  discussion  on  the  changes  that  took  place. 

REVIEW  QUESTIONS 

1.  What  is  a  trial  balance? 

2.  What  is  meant  by  "taking  off  a  trial  balance"? 

3.  When  is  a  trial  balance  said  to  be  "in  balance"?    When  is 

it  "off"? 

4.  When  is  a  ledger  said  to  be  "in  balance"?    When  is  it  "out 

of  balance"? 

5.  What  are  the  two  main  purposes  of  a  trial  balance? 

6.  From  an  arithmetical  point  of  view  why  are  the  sums  of  the 

debit  and  credit  ledger  balances  equal,  barring  errors? 

7.  What  does  a  trial  balance  prove? 

8.  Name  three  classes  of  errors  that  might  be  made  in  connec- 

tion with  the  debits  and  credits  of  a  transaction  without 
causing  the  trial  balance  to  be  out  of  balance. 


82 


FARM  ACCOUNTING 


9.  When  may  a  trial  balance  be  taken? 

10.  What  is  the  customary  time  for  taking  a  trial  balance? 

11.  Name  the  three  general  steps  in  taking  a  trial  balance. 

12.  How  is  the  balance  of  an  account  found  and  recorded  prepara- 

tory to  taking  a  trial  balance? 

13.  What  kind  of  paper  is  suitable  for  taking  a  trial  balance? 

14.  Describe   the   process   of   taking  a  trial   balance   after  the 

ledger  accounts  have  been  prepared  for  it  and  the  paper 
is  ready  for  the  recording  of  the  trial  balance  figures. 

15.  Describe  the  last  step  in  the  completion  of  a  trial  balance. 

16.  What  is  meant  by  a  trial  balance  before  closing?     After 

closing? 

17.  Discuss  the  difference  between  a  trial  balance  before  closing 

and  a  trial  balance  after  closing  as  regards  contents. 

18.  Discuss  the  difference  between  a  trial  balance  after  closing 

and  a  Statement  of  Resources  and  Liabilities. 

19.  In  preparing  financial  statements  from  a  trial  balance  what 

preliminary  step  is  advisable? 

20.  All  debit  balances  in  a  trial  balance  appear  where  in  the 

statements  ? 

21.  All  credit  balances  in  a  trial  balance  appear  where  in  the 

statements  ? 

22.  Why  is  it  correct  to  say  that  the  Statement  of  Resources  and 

Liabilities  contains  all  the  items  in  the  trial  balance  ? 

23.  What  is  the  relation  between  the  Loss  and  Gain  Statement 

and  the  Statement  of  Resources  and  Liabilities?    Is  there 
anything  in  common? 

24.  What   difference   exists   between   the   Capital   account   in   a 

trial  balance  before  closing  and  after  closing? 

25.  Describe   the   two   general   methods   of   preparing   financial 

statements. 

26.  Which   method   is    considered   better   in   farm    accounting? 

Why? 
^7.  In  farm  accounting,  where  is  a  practical  place  to  preserve 
financial  statements? 


)  ■ 


CHAPTER  V 
BOOKS  OF  ORIGINTAL  ENTRY 

The  Ledger  as  an  Only  Book  of  Entry.— The  ledger  has 
been  used  in  the  preceding  chapters  as  the  basis  of  all  ac- 
counting information.  The  essentials  of  all  business  trans- 
actions were  recorded  in  it,  and  all  subsequent  information 
concerning  the  transactions  and  their  aggregate  effect  on 
the  progress  and  condition  of  the  business  was  derived  from 
it.  The  trial  balance,  Statement  of  Resources  and  Liabili- 
ties and  Loss  and  Gain  Statement  were  prepared  from  the 
ledger.  In  fact,  as  previously  suggested^  the  ledger  is  the 
hook  into  which  all  essential  financial  information  of  a 
business  is  placed,  and  out  of  which  data  are  collected, 
sorted  and  correlated  as  a  basis  for  conclusions  and  con- 
structive criticisms  of  the  business.  This  principle  is  fol- 
lowed out  in  all  good  commercial  accounting,  and  applies 
with  equal  significance  to  farm  accounting. 

The  ledger  can  be  used  as  the  only  book  of  record  for 
a  business.  In  commercial  bookkeeping  it  is  not  the  prac- 
tice to  use  it  as  the  only  book  of  record.  In  farm  account- 
ing precedent  does  not  influence  its  use  in  that  way,  but 
other  factors  render  it  more  desirable  to  use  other  books 
in  connection  with  it. 

Five  Reasons  for  Using  Books  of  Original  Entry.— In 
commercial  bookkeeping  there  are  five  reasons  for  using 
other  books,  known  as  books  of  original  entry,  in  which 
debits  and  credits  are  expressed  before  transferring  them 
to  the  ledger  accounts.  It  should  be  remembered,  however, 
that  these  books  of  original  entry  do  not  alter  the  main 

83 


84 


FARM  ACCOUNTING 


usefulness  of  the  ledger  in  any  way.  Even  with  the  use  of 
books  of  original  entry  the  ledger  accounts  receive  all  the 
debits  and  credits  ultimately,  and  hold  them  in  permanent 
form  for  use  later.  Likewise,  the  financial  statements  are 
prepared  in  exactly  the  same  way,  whether  books  of  orig- 
inal entry  are  used  or  not. 

The  five  reasons  for  the  use  of  hooks  of  original  entry 
in  connection  with  the  ledger  in  commercial  accounting 
mxiy  he  summarized  as  follows: — 

1.  To  supply  a  chronological  list  of  husiness  transactions. 
Occasions  arise  in  which  it  is  desirable  to  know  in  what 
order  transactions  occurred. 

2.  To  present  in  one  place  in  compact  form  hoth  the 
dehits  and  credits  involved  in  a  transaction  and  some  ex- 
planation concerning  it.  When  entries  are  made  direct  to 
the  ledger  account,  it  is  often  difficult  to  record  all  the 
explanation  that  should  be  made  concerning  the  transac- 
tion, also  at  any  later  date  it  causes  delay  in  finding  out 
what  two  or  more  accounts  were  affected  by  the  transaction. 

3.  To  permit  of  division  of  lahor,  when  transactions  are 
numerous.  When  several  bookkeepers  are  needed  to  handle 
the  transactions,  several  books  of  original  entry  may  be 
used  at  the  same  time  by  different  employees,  the  results 
being  assembled  afterwards  into  the  ledger. 

4.  To  assist  in  the  prevention  of  errors,  or  in  their  dis- 
covery. For  example,  if  only  the  ledger  is  used,  the  book- 
keeper might  record  the  debit.  Then  while  he  is  turning  to 
the  page  on  which  the  credit  is  to  be  recorded  he  is  inter- 
rupted and  forgets  to  make  the  credit  entry.  This  would 
throw  his  ledger  out  of  balance  and  would  be  one  of  the 
most  difficult  classes  of  error  to  discover,  under  the  con- 
ditions. With  similar  conditions  when  books  of  original 
entry  are  used  the  unfinished  entry  would  usually  be  no- 
ticed at  the  time  of  recording  the  next  transaction.  If  it 
were  not,  the  error  could  easily  be  found  by  a  scrutiny  of 


BOOKS  OF  ORIGINAL  ENTRY 


85 


the  books  of  original  entry  when  the  ledger  or  trial  balance 
was  found  to  be  off. 

5.  To  reduce  the  amount  of  detail  recorded  in  the  ledger, 
and  thus  make  it  a  more  compact  and  permanent  record 
without  destroying  its  usefulness.  This  is  accomplished 
by  the  use  of  any  or  all  of  the  books  of  original  entry  with 
the  exception  of  the  simple  journal  when  used  alone.  In 
all  books  except  the  latter,  provision  is  made  for  classify- 
ing transactions  in  such  a  way  that  a  number  of  debits  or 
credits  to  the  same  account  may  be  transferred  in  total  to 
the  ledger  account  involved. 

With  the  exception  of  the  third,  that  of  the  division  of 
labor,  the  reasons  given  above  would  apply  to  farm  ac- 
counting as  well  as  to  commercial  accounting.  Therefore, 
the  use  of  books  of  original  entry  is  advantageous  on  the 
farm,  if  the  proper  book  or  books  can  be  selected.  Such 
books  should  satisfy  the  conditions  mentioned  above  with- 
out requiring  any  more  work  than  would  be  encountered 
in  using  the  ledger  alone. 

Posting. — Books  of  original  entry  are  used  for  the  pur- 
pose of  expressing  debits  and  credits  as  transactions  arise. 
The  actual  debit  or  credit  to  the  account  does  not  occur 
until  the  debit  or  credit  so  expressed  is  transferred  to  the 
ledger  account.  The  process  of  transferring  dehits  and 
credits  from  hooks  of  original  entry  to  the  ledger  accounts 
is  called  posting.  Posting  might  refer  to  the  transfer  of 
one  expressed  debit  or  credit  at  a  time,  or  it  might  refer 
to  the  transfer  of  a  total  obtained  in  a  book  of  original 
entry  having  special  columns. 

It  follows  that  if  the  ledger  is  to  get  its  data  second 
hand,  so  to  speak,  the  books  of  original  entry  should  show 
at  least  as  much  information  concerning  the  transaction 
as  would  be  shown  in  the  ledger  when  it  is  used  alone.  All 
books  of  original  entry  are  so  designed  as  to  show  this 
much,  and  most  of  them  show  more. 


S6 


FARM  ACCOUNTING 


Characteristics  of  Specific  Books  of  Original  Entry.— 

The  most  common  books  of  original  entry  in  use  by  com- 
mercial trading  concerns  are: 


Jaumal 

Simple 

Columnar 

Cash 

Cash  Book 

Simple 
Colmnnar 


Sales  Book 

Simple 
Colmmiar 


Purchase  Book 
Simple 
Columnar 


There  are  numerous  other  books  in  use  depending  on  the 
size,  nature  and  organization  of  the  business.  There  are 
also  a  great  variety  of  forms  in  use  of  each  of  the  four 
books  mentioned.  The  variety  exists  chiefly  in  the  colum- 
nar books,  those  books  having  special  columns  in  which  to 
record  debits  or  credits  of  like  nature. 

In  farm  accounting  the  journal  and  cash  book  are  the 
only  ones  considered  practical.  The  sales  and  purchase 
books  are  not  needed  because  the  transactions  are  not  nu- 
merous enough  to  warrant  their  use.  The  cash  journal  is 
the  hook  of  original  entry  best  adapted  to  farm  use.  For 
that  reason  it  is  discussed  as  a  separate  book  after  the 
presentation  of  the  simple  journal  and  cash  book. 

Simple  Journal. — In  general  when  the  term  **journar' 
is  used  it  means  simple  journal  unless  otherwise  specified. 
However,  if  a  cash  journal  or  columnar  journal  is  in  use 
in  a  given  business,  the  word  ** journal* '  is  used  to  desig- 
nate the  one  in  use  regardless  of  what  kind  it  might  be. 
For  example,  if  a  farmer  uses  a  cash  journal  and  a  ledger, 
he  speaks  of  the  former  as  his  *' journal' '  without  neces- 
sarily using  the  full,  correct  name. 

If  only  one  hook  of  original  entry  is  to  he  used  in  connec- 
tion with  a  ledger^,  the  journal  is  the  mly  hook  that  will 


BOOKS  OF  ORIGINAL  ENTRY  87 

satisfy  the  requirement.  The  dehit  and  credit  of  any  trans- 
action can  he  expressed  in  the  simple  jmirnal  or  in  the 
cash  journal.  This  is  not  true  of  any  other  hook  of  orig 
inal  entry.  For  this  reason  the  journal  form  is  usually 
used  in  discussion  and  for  analytical  purposes  to  present 
debits  and  credits  in  the  most  compact  form. 

The  simple  journal  is  so  arranged  that  each  debit  and 
each  credit  must  be  posted  as  separate  items  to  the  ledger 
accounts.  With  its  use,  the  ledger  accounts  contain  ex- 
actly the  same  number  of  items  that  they  do  when  the 
ledger  is  used  alone. 

Simple  Journal  Entries  lUustrated.— The  general  form, 
contents  and  explanation  of  the  simple  journal  entry  may 
be  seen  from  the  few  simple  transactions  presented  below. 

TRANSACTION: 

January  1,  1916,  Walter  Marsh  opens  a  set  of  books  and  has 
$2500  cash  with  no  other  resources. 


ENTRY: 
(Simple)  Journal 


De. 


Or. 


Walter  Marsh 

January  7, 1916 
I  have  decided  today  to  open  a  set  of  double  entryi  account  books 
for  my  business,  beginning  with  the  following  entry. to  record  my 
resources. 

^^^ $2,500 

Walter  Marsh  Capital |2  500 

TRANSACTION: 

January  2  Paid  cash  as  foUows:  for  horses  $700,  hogs  $500,  cattle 
$200,  equipment  $300. 

m  should  be  recaUed  that  "double  entry"  implies  the  twofold  effect 
of  every  transaction-debits  and  credits  of  equal  amounts.  It  does 
not  denve  its  name  in  any  way  from  the  fact  that  entries  are  made 
urst  m  a  book  of  original  entry  and  then  posted. 


\ 


II  i 


If 


88  FARM  ACCOUNTING 

ENTRY: 

January  2 

Horses $700 

Hogs 500 

Cattle 200 

Equipment 300 

Cash $1,700 

(Bought  stock  and  equipment  for  cash) 

TRANSACTION: 

January  31,  paid  $25  for  labor 

ENTRY: 

January  31 

Labor $25 

Cash $25 

(Paid  Jas.  Brown  for  Jan.) 

These  and  other  transactions  were  entered  during  the 
half  year,  at  the  close  of  which  the  journal  contained  the 
entries  as  presented  in  Illustration  18. 

The  ledger  accounts  created  by  the  posting  of  the  jour- 
nal entries  are  shown  in  Illustration  19.  The  entries  in 
the  journal  are  to  be  studied  and  the  postings  traced  to 
the  proper  ledger  accounts.  The  figures  to  the  left  of  the 
titles  of  accounts  in  the  journal  are  posting  references. 
They  indicate  the  pages  in  the  ledger  on  which  the  accounts 
are  to  be  found.  Likewise,  the  figures  in  the  ledger  ac- 
counts to  the  left  of  the  amounts  indicate  the  pages  in  the 
journal  from  which  the  items  were  posted.  In  the  case 
at  hand,  it  is  considered  that  all  journal  entries  are  on 
page  1,  and  all  ledger  accounts  on  page  1. 


BOOKS  OF  ORIGINAL  ENTRY 


89 


, 


fi  I 


ILLUSTRATION  18 
Simple  Journal  Entries 
(Simple)  Journal  Walter  Marsh  Dr.  Cb. 

January  1, 1916 

I  have  decided  today  to  open  a  set  of  double  entry  account 
books  for  my  business,  beginning  with  the  followmg  entry  to  record 
my  resources. 

1    Cash 12,500 

1  Walter  Marsh  Capital %2  500 

B 

1    Horses 70Q 

1    Hogs 500 

1    Cattle 200 

1    Equipment 300 

1  Cash 1^700 

(Bought  stock  and  equipment  for  cash) 

SI 

1    Labor 25 

1  Cash 25 

(Paid  Jas.  Brown  for  Jan.) 

February  28 

1    Labor 26 

1  Cash 25 

(Paid  Jas.  Brown  for  Feb.) 

March  31 

1    Labor 25 

1  Cash 25 

(Paid  Jas.  Brown  for  Mar.) 


;l 


90  FARM  ACCOUNTING 

April  12 

1    General  Expense 21 

1  Cash 21 

(Paid  for  sundry  items,  enumerated) 

SO 

1    Labor 30 

1  Cash 30 

(Paid  Jas.  Brown  for  Apr.) 

May  SI 

1    Labor 30 

1  Cash 30 

(Paid  Jas.  Brown  for  May) 

June  10 

1    Cash 750 

1  Hogs 760 

(Sold  all  the  hogs) 

18 

1    Cash 34 

1  Misc.  Income 34 

(Sold  garden  truck  and  fruit) 

SO 

1    Labor 35 

1  Cash 35 

(Paid  Jas.  Brown  for  June) 

Ledger  Accounts  Posted  from  Journal  Entries. — ^After 
the  entries  are  recorded  in  the  journal,  it  is  necessary  to 
post  them  to  the  several  ledger  accounts  affected.  The 
ledger  accounts  in  Illustration  19  are  the  ones  made  as  a 
result  of  posting  the  journal  entries  of  Illustration  18. 


i;  '• 


BOOKS  OF  ORIGINAL  ENTRY 


91 


ILLUSTRATION  19 

Ledger  Accounts  Prepared  from  Journal  Entries  op 

Illustration  18 

Cash 


1916 

Jan.     1  Invested  1 . . 

June  10  Hogs  1 . . 

June  18  Misc.  1.. 


1916 

Jan.     2  Cash 


1916 

Jan.     2  Cash 


$2,500 

750 

34 


I 


1916 

Jan.  2  Sundries  1 
Jan.  31  Labor  1 
Feb.  28  Labor  1 
Mar.  31  Labor  1 
Apr.  12  Sundries  1 
Apr.  30  Labor  1 
May  31  Labor  1 
June  30  Labor      1 


Horses 


1916 

Jan.    2  Cash 


1 $700 


Hogs 


^ .  .  .  .         OUv/ 


1916 

June  10  Cash 


Cattle 


1. 


200 


Equipment 


1916 

Jan.     2  Cash         1....      300 


$1,700 
25 
25 
25 
21 
30 
30 
35 


750 


92 


FARM  ACCOUNTING 


Walter  Marsh  Capital 


1916 

Jan.  1  Net  Investment  1  $2,500 


Labor 

1916 

f 

Jan.  31  Cash         1. 

...       $25 

. 

Feb.  28  Cash         1. 

25 

Mar.  31  Cash         1. 

25 

Apr.  30  Cash         1. 

30 

May  31  Cash         1. 

30 

June  30  Cash         1. 

35 

• 

General  Expense 


1916 

Apr.  12  Cash 


1....        21 


Miscellaneoits  Income 


1916 

June  18  Cash 


X  •  •  •  • 


34 


Posting  from  Simple  Journal. — It  will  be  observed  from 
a  study  of  Illustrations  18  and  19  that  the  process  of  post- 
ing from  the  simple  journal  is  not  at  all  complicated,  as  it 
is  performed  in  accordance  with  a  well  defined  plan.  In 
posting  from  the  simple  journal  to  the  ledger  it  is  advisable 
to  look  at  only  one  horizontal  line  at  a  time,  in  order  to 
get  all  the  essentials  for  posting.  For  example,  using  the 
first  item  of  the  second  journal  entry  in  Illustration  18, 
this  item  expresses  a  debit  to  Horse  account  of  $700  on 
January  2,  1916.    Looking  only  at  this  one  line,  we  know 


BOOKS  OF  ORIGINAL  ENTRY 


99 


first  that  since  the  $700  is  in  the  debit  column  of  the  jour- 
nal, it  must  be  posted  to  the  debit  side  of  the  ledger 
somewhere.  The  exact  place  in  the  ledger  is  found  to  be 
Horse  account,  when  we  follow  along  the  horizontal  line 
to  the  left  of  the  amount  in  the  journal. 

The  next  item  in  the  journal  is  $500  in  the  debit  coluton. 
Therefore  $500  must  be  placed  on  the  debit  side  of  the  led- 
ger. The  exact  place  in  the  ledger  is  found  to  be  Hogs 
account,  when  we  look  to  the  left  along  the  same  horizontal 
line.  Cattle  and  Equipment  accounts  are  similarly  debited. 
Likewise  the  item  in  the  credit  side  of  this  entry  must  ap- 
pear on  the  credit  side  of  the  ledger  under  the  Cash  ac- 
count. 

The  journal  entry  under  discussion  is  called  a  compound 
journal  entry  because  it  has  more  than  one  debit  and  one 
credit.  The  sum  of  the  debits  of  a  compound  entry  must 
always  equal  the  sum  of  the  credits. 

The  same  principles  are  followed  in  posting  all  other 
debits  and  credits  from  the  journal  to  the  ledger.  The 
work  is  largely  mechanical,  but  requires  great  care  in  order 
to  avoid  errors.  It  may  be  said  that  one  performs  the  men- 
ial work  at  the  tim£  of  framing  the  journal  entries,  and 
that  he  is  merely  following  the  instructions  of  the  entries 
in  posting  them  to  the  ledger. 

Simple  Cash  Book.— The  simple  cash  book  u-^ually  is  so 
arranged  that  both  the  left  and  right-hand  pages  are  in 
use  at  the  same  time,  the  left  one  for  cash  received  and  the 
right  one  for  cash  paid.  Each  page  has  vertical  columns 
and  lines  quite  similar  to  the  simple  journal. 

On  the  left-hand  side  of  the  cash  book  are  entered  in 
chronological  order  all  amounts  of  cash  received,  and  on 
the  right  hand  side  all  amounts  of  cash  paid  out.  Cask 
includes  all  currency,  coins,  checks,  bank  drafts  and  money 
orders,  but  not  promissory  notes.  When  for  example 
$2500  cash  is  received  as  investment  of  the  proprietor,  the 


I 


94 


FARM  ACCOUNTING 

ILLUSTRATION  20 
Simple  Cash  Book  Entries 


(Simple)  Cash  Book 

Walter  Marsh 

1      (Left  hand  page) 

(Right  hand  page) 

Received 

Paid  Out 

1916 

1916 

Jan.     1  W.MarshCap.  1  $2,500 

Jan.     2  Horses 1 

$700 

June  10  Hogs               1 

760 

Jan.     2  Hogs               1 

500 

June  18  Misc.  Income  1 

34 

Jan.     2  Cattle             1 

200 

Jan.     2  Equipment     1 

300 

Jan.  31  Labor             1 

2§ 

Feb.  28  Labor              1 

25 

Mar.  31  Labor              1 

25 

Apr.  12  General  Exp.  1 

21 

• 

Apr.  30  Labor             1 

30 

May  31  Labor             1 

30 

June  30  Labor             1 

1 

35 

1,891 

June  30  Bal.  down 

1,393 

1  $3,284 

$3,284 

1916 

July    1  Bal.  down $1,393 

entry  on  the  left  side  of  the  cash  book  expresses  the  same 
debit  and  credit  as  would  be  expressed  in  the  journal  for 
the  same  transaction.  In  the  case  just  cited  the  cash  book 
entry  must  be  made  in  such  a  way  as  to  express  a  debit 
to  cash  and  a  credit  to  the  Proprietor's  Capital  account. 

The  form  of  the  entry  in  the  cash  book  is  not  the  same  as 
in  the  journal.  It  is  a  form  which  permits  of  a  more  com- 
pact record,  with  less  writing,  less  posting  and  fewer 
figures. 


BOOKS  OF  ORIGINAL  ENTRY 


95 


The  simple  cash  hook  cannot  he  used  as  an  only  hook  of 
original  entry  unless  all  transactions  involve  cash.  This 
condition  seldom  exists.  Accordingly  the  simple  cash  book 
is  usually  used  in  conjunction  with  the  journal.  The  cash 
book,  then,  is  used  for  recording  all  cash  transactions  and 
the  journal  for  all  transactions  not  involving  cash. 

Illustrations  20  and  21  present  the  simple  cash  book  and 
the  ledger  accounts  created  therefrom.  For  comparative 
purposes  the  same  transactions  are  used  as  were  used  in 
presenting  the  journal  in  Illustration  18,  all  of  which  in- 
volved cash.  The  ledger  page  to  which  posting  is  made 
is  recorded  to  the  left  of  the  cash  book  amount. 

ILLUSTRATION  21 

Ledger  Accounts  Prepared  from  Cash  Book  Entries  of 

Illustration  20 

Cash 


1916 

June  30  Total  Ree'd    1  $3,284 


1916 

June  30  Total  paid  out  1  $1,891 


Horses 


1916 

Jan.     2  Cash 


1      700 


Hogs 


1916 

Jan.     2  Cash 


500 


1916 

June  10  Cash 


1      750 


Cattle 


1916 

Jan.     2  Cash 


I      200 


96 


FARM  ACCOUNTING 


Equipment 


BOOKS  OF  ORIGINAL  ENTRY 


97 


1916 
Jan.    2 


1     300 


Walter  Marsh  Capital 


1916 

Jan.     1  Net  Invest.     1  2,500 


1916 

Jan.  31  Cash  1  $25 

Feb.  28Cash  1  25 

Mar.  31  Cash  ..1  25 

Apr.  30  Cash  1  30 

May  31  Cash  1  30 

June30Cash  1  35 


1916 

Apr.  12  Cash 


Miscellaneous  Income 


1916 

June  18  Cash 


34 


Posting  from  Simple  Cash  Book. — From  a  study  of  Illus- 
trations 20  and  21,  it  is  observed  that  there  is  only  one 
item  posted  to  each  side  of  the  Cash  account.  This  reduc- 
tion in  tie  amount  of  posting  is  due  to  the  arrangement 
of  the  cash  book.    It  is  not  necessary  to  post  each  item  to 


\ 


the  debit  side  of  Cash  account  in  the  ledger  because  every 
item  on  the  cash  received  or  left  hand  page  expresses  a 
debit  to  cash.  The  same  result  is  obtained  by  posting  only 
the  total  of  all  the  items.  Similarly,  the  total  of  the  cash 
paid  out  is  posted  to  the  credit  side  of  Cash  account.  It 
is  noted  that  the  abbreviated  way  of  expressing  debits  and 
credits  in  the  cash  book  requires  the  writing  of  the  amount 
only  once,  while  in  the  journal  the  amount  was  expressed 
twice  in  each  entry.  The  writing  of  the  words  ''cash  re- 
ceived'' at  the  top  of  the  page  in  the  cash  look  is  equiva- 
lent to  writing  ''Each  amount  on  this  page  expresses  a  delit 
to  Cash  account  and  a  credit  to  the  accoumt  named  on  the 
same  horizontal  line  to  the  left  of  the  amount.'*  Similarly, 
the  use  of  the  words  ''cash  paid  out"  at  the  top  of  the  right- 
hand  page  is  equivalent  to  writing  "Each  amount  on  this 
page  expresses  a  credit  to  Cash  account  and  a  debit  to  the 
account  named  on  the  same  horizontal  line  to  the  left  of 

the  amount." 

These  facts  give  rise  to  a  procedure  which  many  begin- 
ners in  bookkeeping  find  difficult  to  master,  namely,  that  in 
posting  from  the  left  hand  page  of  the  cash  book,  the  indi- 
vidual items  are  posted  to  the  credit  side  of  the  ledger  ac- 
counts named ;  and  in  posting  from  the  right  hand  page  of 
the  cash  book,  the  individual  items  are  posted  to  the  debit 
side  of  the  ledger  accounts  named.  The  reason  for  the 
apparent  difficulty  lies  in  the  fact  that  the  average  begin- 
ner does  not  have  a  clear  conception  of  ledger  accounts  be- 
fore he  learns  about  posting.  Debits  and  credits  may  be 
expressed  in  a  variety  of  ways  in  books  of  original  entry. 
In  order  to  post  intelligently  one  must  know  that  a  debit 
expressed  anywhere  must  ultimately  be  posted  to  the  debit 
side  of  some  account  in  the  ledger. 

The  Cash  Journal.— The  cash  journal  as  used  in  com- 
mercial enterprises  is  a  book  that  is  criticized  by  auditors, 
but  the  criticisms  in  that  connection  do  not  hold  in  farm 


98 


FARM  ACCOUNTING 


accounting.  Except  from  the  auditor  *s  point  of  vitv/,  the 
book  is  a  very  useful  one.  Especially  is  its  use  adapted  to 
the  farm  because  of  the  fact  that  all  transactions  can  be 
recorded  in  the  one  book  of  original  entry  and  because  a 
great  saving  is  made  in  the  amount  of  posting.  It  is  not 
practical  to  use  the  simple  journal  alone  because  of  the 
volume  of  posting.  The  cash  book,  if  used,  must  always  be 
accompanied  by  the  journal,  thus  necessitating  the  use  of 
two  books  aside  from  the  ledger,  if  the  simple  cash  book  is 

used. 

A  variety  of  forms  may  be  devised  for  the  cash  journal. 
The  principle  upon  which  all  cash  journals  are  founded, 
however,  is  that  special  debit  and  credit  columns  are  pro- 
vided for  those  accounts  which  are  affected  the  greatest 
number  of  times  by  transactions  in  the  business  in  ques- 
tion. In  any  business,  cash  is  usually  affected  a  great 
many  times.  This  always  gives  rise  to  the  use  of  special 
columns  for  cash,  which  fact  is  largely  responsible  for  the 
name  of  the  book. 

Besides  the  cash  columns  there  are  invariably  at  least 
two  other  columns,  one  on  the  debit  and  one  on  the  credit 
side.  If  there  is  only  one  column  on  each  side  of  the  cash 
journal  in  addition  to  the  cash  column,  such  additional 
columns  are  called  ''sundry''  and  are  used  in  the  same 
way  as  the  columns  of  the  simple  journal  A  cash  journal, 
then,  always  has  at  least  two  debit  and  two  credit  columns, 
and  it  may  have  as  many  more  as  are  demanded  by  the 
nature  of  the  transactions.  It  is  not  necessary  that  there 
be  an  equal  number  of  debit  and  credit  columns,  but  it  is 
essential  that  debits  and  credits  of  equal  amount  shall  be 
expressed  for  each  transaction. 

Illustrations  22  and  23  present  the  cash  journal,  and  the 
ledger  accounts  created  from  its  entries.  For  comparative 
purposes,  the  same  transactions  are  used  as  in  Illustrations 
18  and  19,  in  which  the  journal  was  used  alone;  and  in 


il 


I 


ih 


ILLUSTRATION  22 

Cash  Journal  Entries 
Cash  Journal  Walter  Marsh 


Labor 
Dr. 

Cash 
Dr. 

Fo. 

Sundry 
Dr. 

$2,500 

• 

1 
1 
1 
1 

$700 

500 

.    200 

300 

$25 

25 

• 

25 

* 

1 

21 

30 

• 

' 

30 

750 
34 

35 

1 

$170 

$3,284 

1 

r 

$1,721 

3,284 

170 

$5,175 

Items 


Jan.  1,  1916 
Cash,  W.  Marsh 

Cap.  (Grig.  Invest.) 
2 
Horses 
Hogs 
Cattle 

Equipment,  cash 
(Bought  proi)erty  for 

cash) 

31 
Labor,  cash 
(J.  Brown  for  Jan.) 

Feb.  28 
Labor,  cash 
(J.  Brown  for  Feb.) 

Mar.  31 
Labor,  cash 
(J.  Brown  for  Mar.) 

Apr.  12 
Gen.  Exp.  cash 
(Sundry  items  bought, 

viz.:  ..) 
30 
Labor,  cash 
(J.  Brown  for  Apr.) 

May  31 
Labor,  cash 
(J.  Brown  for  May) 

June  10 
Cash,  hogs 
(Sold  all  hogs) 

18 
Cash,  Misc.  Income 
(Sold  fruit  and  vege- 
tables) 

30 
Labor,  cash 
(J.  Brown  for  June) 


Cash 
Labor 


Fo. 


1 
1 


Sundry 
Cr. 


$2,500 


750 
34 


$3,284 
1,891 


$5,175 


Cash 
Cr. 


$1,700 

25 
25 
25 

21 

> 
30 

30 


35 


$1,891 


Julyl 

Cash  balance, 

$1,393 
99 


r    '  ' 


100 


FARM  ACCOUNTING 


20  and  21,  in  which  the  cash  book  was  used  alone.  The 
columns  are  used  to  fit  this  particular  case  but  are  quite 
representative.  The  ledger  pages  are  indicated  in  the  cash 
journal  in  the  columns  to  the  left  of  the  amount  in  the 
** sundry''  columns. 

ILLUSTRATION  23 

Ledoeb  Accounts  Prepared  from  Cash  Journal  of 

Illustration  22 


Cash 


1916 

June  30  Rec'd 


1   $3,284 


1916 

June  30  Paid  out  1 . . . .  $1,891 


Horses 


1916 

Jan.    2  Cash    1 


700 


Hogs 


1916 

Jan.    2  Cash    1        500 


1916 

June  10  Cash 


750 


Catae 


I 


1916 

Jan.    2  Cash    1 


200 


Equipment 


1916 

Jan.    2  Cash 


1        300 


BOOKS  OF  ORIGINAL  ENTRY 


Walter  Marsh  Capital 


101 


1916 

. 

Jan.     1  Net  Invest.  1 . . 

2,500 

Labor 

1916 

June  30  Cash    . . 

....1        170 

■ 
General  Expense 

1916 

Apr.  12  Cash    .. 

....1          21 

Miscellaneous  Income 

1916 

June  18  Cash  1 

34                        i 

Posting  from  the  Cash  Journal. — From  an  examination 
of  the  cash  journal  and  the  ledger  accounts  as  presented 
in  Illustrations  22  and  23,  it  is  seen  that  the  ledger  accounts 
are  more  condensed  than  in  Illustrations  19  and  21,  when 
the  ledger  was  prepared  from  the  simple  journal  and  sim- 
ple cash  book,  respectively,  with  the  same  group  of  transac- 
tions. The  Labor  account  has  only  one  entry,  which  is  the 
total  of  the  labor  debit  column  of  the  cash  journal.  The 
Cash  account  has  only  one  entry  on  each  side,  as  it  did  in 
the  ledger  prepared  from  the  cash  book. 

In  posting  from  the  cash  journal  the  items  in  the  sundry 
columns  are  posted  individually  while  those  in  the  other 
columns  are  posted  in  total.  Before  posting  the  totals,  they 
are  carried  into  the  sundry  columns  for  two  reasons:     ^ 

1.  In  order  to  have  all  postings  made  from  one  debit 
column  and  one  credit  column. 


102 


FARM  ACCOUNTING 


2.  To  bring  all  amounts  into  the  two  columns,  one  debit 
and  one  credit,  so  that  it  can  be  seen  more  easily  whether 
the  sum  of  the  debits  equals  the  sum  of  the  credits.  In 
Illustration  22  the  sum  of  the  three  debit  columns  is  shown 
as  $5175  and  the  sum  of  the  two  credit  columns  as  $5175. 
Apparently,  debits  and  credits  of  equal  amount  have  been 
made  for  all  the  transactions.  The  balance  of  cash  is 
shown  in  the  explanation  column  on  the  first  day  of  the 
succeeding  period  as  in  the  Illustration. 

The  columns  used  in  this  problem  were  selected  because 
Labor  was  found  to  be  the  account  with  the  most  entries 
in  Illustration  21,  while,  of  course,  the  cash  and  sundry 
columns  are  essential  in  all  cash  journals. 

Optional  Form  for  Cash  Journal. — Because  of  inability 
to  procure  appropriate  blank  account  books  ruled  for  use 
as  a  cash  journal  similar  to  the  one  shown  in  Illustration 
22,  another  form  is  often  used.  This  optional  form  has  the 
explanation  columns  to  the  left,  followed  by  the  several 
money  columns.  Under  this  form^  the  money  columns 
may  be  grouped  by  accounts  or  by  debits  and  credits. 
When  they  are  grouped  by  accounts  the  columns  from  left 
to  right  might  be  as  follows,  using  the  headings  employed 
in  Illustration  22:  Explanation  space,  Sundry  Dr.,  Sun- 
dry Cr.,  Cash  Dr.,  Cash  Cr.,  Labor  Dr.  When  they  are 
grouped  by  debits  and  credits,  the  columns  would  be  ar- 
.  ranged  in  some  such  way  as  this:  Explanation  space, 
Sundry  Dr.,  Cash  Dr.,  Labor  Dr.,  Sundry  Cr.,  Cash  Cr. 

Under  either  of  these  optional  methods,  the  general  prin- 
ciples of  entering  and  posting  transactions  apply  as  ex- 
plained for  the  cash-journal  form  in  Illustration  22.    That 

*  Blank  books  for  use  as  cash  journals  may  be  obtained  at  stationery 
stores.  Books  with  six,  eight,  twelve,  fourteen  or  eighteen  columns 
may  be  used,  depending  on  the  requirements  of  the  business.  A 
twelve  or  fourteen  column  one  is  best  for  all  general  farming  pur- 
poses. 


BOOKS  OF  ORIGINAL  ENTRY 


103 


I 


is,  the  debits  and  credits  to  accounts  not  represented  by 
special  columns  are  recorded  in  the  sundry  columns;  the 
totals  of  all  debit  columns  are  summarized  at  the  end  of 
the  debit  sundry  column,  and  of  all  credit  columns  at  the 
end  of  the  credit  sundry  column. 

When  an  item  is  entered  in  a  sundry  column  it  does  not 
mean  a  debit  or  a  credit  to  an  account  called  ''sundry." 
The  name  of  the  account  to  be  debited  or  credited  is  placed 
in  the  explanation  column  on  ithe  same  horizontal  line  with 
the  amount  in  question.  The  ledger  posting  pages  are  re- 
corded in  the  column  marked  ''Fo."  meaning  ''folio." 

Preventing  and  Finding  Errors.— In  the  making  of  en- 
tries in  books  of  original  entry,  in  adding  columns,  in 
posting,  in  finding  balances  of  accounts  and  in  listing  bal- 
ances in  the  trial  balance,  opportunities  for  making  errors 
arise.  Such  errors  are  usually  not  discovered  until  the 
addition  of  the  two  columns  of  the  trial  balance  indicates 
that  it  is  off.  Looking  for  errors  is  one  of  the  most  tedious 
processes  in  bookkeeping.  A  study  of  methods  that  will 
reduce  the  number  of  errors  or  assist  in  finding  them  is  an 
important  part  of  the  study  of  bookkeeping.  Obviously,  it 
is  much  better  to  reduce  the  number  of  errors  if  possible. 
Experience  has  taught,  however,  that  it  is  the  exceptional 
bookkeeper  who  can  avoid  errors.  Accordingly  it  is  ad- 
visable also  to  know  what  to  do  when  errors  exist. 

Precautions  for  Preventing  Errors.— The  following  pre- 
cautions are  suggested  for  preventing  errors: 

1.  Keep  your  mind  on  your  work. 

2.  Look  at  each  amount  twice,  once  while  writing  it  and 
once  immediately  after  writing  it,  as  sort  of  a  check  against 
the  amount  from  which  it  is  recorded  or  posted. 

3.  Add  each  column  of  figures  twice,  once  from  the  top 
down,  and  once  from  the  bottom  up.  The  same  result  both 
ways  is  a  reasonable  proof  of  accuracy,  since  the  combina- 


104 


FARM  ACCOUNTING 


VI 


:| 


tion  of  figures  is  not  the  same  in  running  up  and  down  the 
columns. 

4.  Make  sure  that  every  item  is  placed  in  the  proper 
column  in  the  hook  of  original  entry,  and  that  the  debits 
and  credits  that  you  had  in  mind  at  the  time  of  analyzing 
the  transactions  are  the  ones  that  are  expressed  in  the 
hook  of  original  entry.  (An  error  caused  by  a  failure  to 
do  this  would  not  be  revealed  in  the  trial  balance.) 

5.  Post  all  the  dehits  first  for  the  period  and  then  post 
all  the  credits.  This  will  tend  to  avoid  posting  to  the 
wrong  side  of  an  account. 

6.  Before  posting,  see  that  the  dehits  equal  the  credits 
in  the  hooks  of  original  entry.  In  the  simple  cash  book 
this  would  hardly  apply,  except  to  the  check  afforded  by 
adding  the  columns,  for  one  amount  expresses  both  the 
debit  and  credit  of  a  transaction.  In  the  simple  journal 
a  scrutiny  of  the  debit  and  credit  amounts  would  suffice, 
but  in  the  cash  journal  it  should  be  seen  that  the  sum 
total  of  the  debit  columns  agrees  with  the  sum  total  of 
the  credit  columns. 

7.  Exercise  great  care  in  finding  the  balances  of  the 
accounts  and  in  listing  them  in  the  trial  balance. 

8.  Verify  the  cash  occasionally  to  see  that  the  amount 
under  your  control  is  equal  to  the  ammint  that  the  cash 
hook  or  cash  journal  indicates  you  should  have.  If  it  is 
off  it  might  lead  you  to  recall  some  instance  of  cash  re- 
ceived or  paid  that  had  not  been  entered,  or  it  might  lead 
to  the  discovery  of  a  cash  item  entered  in  the  cash  book 
for  the  wrong  amount. 

Common  Types  of  Errors. — Errors  are  classified  in  order 
to  assist  in  establishing  a  methodical  way  of  finding 
them.  The  following  list  indicates  the  types  of  errors 
made  most  often:  Addition  in  books  of  original  entry, 
posting  wrong  amount,  omission  of  posting,  posting  same 
item  twice,  posting  to  the  wrong  side  of  an  account,  tran^- 


BOOKS  OF  ORIGINAL  ENTRY 


105 


position  of  figures,  transplacement  of  figures,  carrying  to- 
tals or  balances  forward  from  one  page  to  another,  bring- 
ing down  balances,  closing  accounts,  footing  the  ledger 
accounts,  calculating  the  balances  of  the  ledger  accounts, 
listing  wrong  amount  in  trial  balance,  entering  on  the 
wrong  side  of  the  trial  balance. 

Rules  for  Finding  Errors.—In  order  to  find  errors  with 
the  least  time  and  effort  one  must  be  familiar  with  the 
types  of  errors  and  the  methods  of  preventing  them.  The 
finding,  then,  resolves  itself  into  a  systematic  review  of 
the  work  where  errors  are  most  likely  to  exist.  The  fol- 
lowing order  of  procedure  is  regarded  as  the  one  that  will 
result  in  the  finding  of  errors  in  the  least  time : 

1.  Find  the  amount  of  the  error  by  calculating  the  dif- 
ference between  the  two  totals  of  the  trial  balance. 

2.  //  the  difference  is  any  number  containing  only  the 
digit  1  and  0,  or  containing  only  the  digit  9,  the  error  is 
doubtless  in  addition  or  subtraction.  Thus  in  an  error 
of  $1,  $10,  10  cents,  1  cent,  99  cents,  $9.99,  etc.,  check 
over  the  additions  and  subtractions  of  ledger  accounts, 
trial  balance  and  special  columns.  An  error  of  $9.99  might 
be  the  result  of  an  error  of  $10  one  way  and  1  cent  the 
other. 

3.  If  the  difference  is  divisible  by  2  {that  is,  if  it  is  an 
even  number)  look  for  one-half  the  amount  on  the  other 
side.  Thus,  if  the  credit  side  of  the  trial  balance  exceeds 
the  debit  side  by  $96  it  might  have  been  caused  by  placing 
a  ledger  debit  balance  of  $48  on  the  credit  side  of  the 
trial  balance.  It  might  also  have  been  caused  by  posting 
a  debit  of  $48  to  the  credit  side  of  an  account. 

4.  //  the  difference  is  exactly  divisible  by  9  look  for  a 
transposition  or  transplacement  of  figures.    For  example 
if  the  error  is  $27,  perhaps  $63  has  been  written  in  place 
of  $36  or  vice  versa.    It  is  always  true  that  an  error  due  to 
transposition  is  exactly  divisible  by  9.    Thus  the  difference 


106 


FARM  ACCOUNTING 


between  52  and  25  is  27;  between  53  and  35  is  18.  This 
is  an  easy  way  to  find  errors  if  one  is  familiar  with  its 
use,  but  care  should  be  taken  lest  time  be  wasted  in  a  jug- 
gling of  figures. 

This  is  also  true  of  transplacement  of  figures,  which  is 
likewise  distinguished  by  the  fact  that  the  amount  of  the 
error  is  divisible  by  9.  Suppose  that  $630  has  been  posted 
as  $6.30,  making  an  error  of  $623.70,  which  is  divisible 
by  9  and  evidently  a  transplacement.  To  find  the  amount 
transplaced  subtract  the  cents  of  the  error  from  100,  as 

From  100 

Deduct  the  cents  of  the  error      70 


Leaving  a  balance  of 


30 


Now  look  in  the  cents  column  for  30,  which  will  result 
in  finding  the  $6.30.  Upon  investigation  it  will  be  found 
that  the  entry  should  have  been  $630.  Suppose  that  $4.45 
has  been  posted  as  $445,  giving  an  error  of  $440.55,  the 
same  rule  will  apply;  55  deducted  from  100  gives  45, 
which  is  the  amount  to  be  looked  for  in  the  last  dollar 

columns. 

5.  If  the  difference  is  a  large  amount,  no  matter  whether 
Bules  2y  3  and  4  can  he  applied  or  not  it  is  always  desirable 
to  look  for  the  amount  omitted.  One's  memory  will  often 
serve  him  in  this  connection. 

6.  //  none  of  the  tests  mentioned  can  he  readily  applied 
hegin  a  ^jstematic  checking  of  all  the  postings  and  addi- 
tions, hearing  in  mind  the  points  mentioned  under  the 
prevention  of  errors.  In  checking  postings  a  check  mark 
similar  to  a  '*V'Ms  placed  opposite  each  amount  in  the 
books  of  original  entry  and  in  the  ledger  as  the  amounts 
are  found  to  be  properly  posted.  After  the  checking  is 
completed,  a  careful  scrutiny  of  all  items  follows  to  find 


BOOKS  OF  ORIGINAL  ENTRY  107 

any  items  in  either  hook   that  have   not   heen  checked 
against  item^  in  the  other. 

Correcting   Errors.— Too    mm>h    emphasis    cannot    be 
placed  upon  the  importance  of  correcting  errors  after  they 
have  been  found.    The  author  knows  of  several  instances 
in  which  bookkeepers,  off  in  their  trial  balances,  have  found 
the  errors,  corrected  the  totals  in  the  trial  balances  and 
said,  '*now  it's  all  right."    At  the  next  time  of  taking  a 
tnal  balance  they  had  a  most  trying  time.    It  was  found 
after  some  difficulties,  that  they  had  not  corrected  the 
previously  existing  errors  in  the  ledger  accounts.     They 
had  proceeded,  hx)wever,  on  the  assumption  that  everythin^r 
was  correct  down  through   the   preceding  trial  balance" 
Such  errors  carried  over  from  a  preceding  period  have 
caused  many  otherwise  good  bookkeepers  to  spend  almost 
sleepless  nights  looking  for  errors  in  the  present  period 
while  they  really  existed  in  the  preceding  period. 

If  the  error  in  question  is  found  as  a  result  of  taking 
the  trial  balance  before  closing,  failure  to  correct  it  after 
discovery  can  be  found  by  taking  a  trial  balance  after 
closing.  Errors  in  trial  balances  after  closing  usuaUy 
arise  in  carrying  down  balances  in  the  ledger  and  are* 
quite  easily  found.  The  mechanical  process  of  correcting 
errors  consists  chiefly  in  crossing  out  the  wrong  figures 
with  a  single  line  and  writing  the  correct  ones  above  them 
or  m  the  proper  place  (perhaps  on  the  opposite  side  of 
an  account). 

Some  errors  do  not  affect  the  trial  balance.  These,  if 
found  at  all,  usually  require  special  treatment.  If  a  tr^s- 
action  is  omitted  entirely,  enter  it  on  the  next  unused  line 
m  the  book  of  original  entry  and  make  a  note  that  it 
Should  have  been  entered  on  a  certain  other  date.  If  an 
Item  IS  posted  to  the  correct  side  of  the  ledger  but  to  the 
wrong  account  make  an  entry  in  the  journal  to  correct 
It.    All  adjustments,  corrections  and  transfers  should  be 


108 


FARM  ACCOUNTING 


! 


made  through  the  journal  when  more  than  one  account 
is  involved.  Thus,  if  an  item  of  $150  were  posted  to  the 
debit  side  of  Cattle  account,  instead  of  the  debit  side  of 
Horses  account,  the  correcting  entry  in  the  journal  or  cash 
journal  should  express  a  debit  to  Horses  account  and  a 
credit  to  Cattle  account  of  $150. 

Finding  Errors  in  the  Cash  Balance. — Mention  was 
made  above  to  the  fact  that  the  cash  balance  should  be 
verified  occasionally.  This  means  that  an  effort  should  be 
made  to  determine  that  the  amount  of  cash  as  shown  by  the 
cash  book,  cash  journal  or  Cash  account  is  equal  to  the 
amount  under  one's  control.  The  Cash  account  balance, 
after  posting,  should  equal  the  amount  of  cash  in  the 
checking  account  at  the  bank,  plus  the  amount  in  one's 
purse,  plus  the  amount  anywhere  about  the  premises. 

The  calculation  made  in  verifying  the  cash  balance 
usually  assumes  this  form: 

Balance  in  "X"  Bank,  checking  account  June  30, 1916,  per 

check  stub $1,380 

Cash  on  premises 1^ 

•  

Balance  in  my  possession  per  Cash  account,  June  30, 1916 . .    $1 ,393 

fDr.  $3,284 
(See  Illustration  23)    \  Cr.     1,891 


$1,393 


Reconciling  the  Checking  Account. — In  speaking  of  a 
checking  account,  one  does  not  imply  that  there  is  an 
account  in  the  ledger  called  "checking  account."  He 
means  merely  the  record  kept  on  the  premises  usually  in 
the  form  of  check  stubs  to  show  from  time  to  time  how 
much  is  left  in  the  bank  available  for  use.  The  balance 
on  the  check  stubs  on  a  given  date  presumably  shows  the 


amount  for  which  one  may  issue  checks  before  entirely 
exhausting  the  amount  on  deposit.  However,  it  cannot 
be  stated  positively  that  one  has  the  right  to  withdraw 
an  amount  equal  to  the  balance  of  the  check  stubs. 

Errors  are  made  sometimes  which  cause  the  check  stubs 
to  show  an  untrue  state  of  affairs.  It  is  for  this  reason 
that  the  balance  shown  by  the  check  stubs  should  be  veri- 
fied occasionally  with  the  balance  shown  by  the  books  of 
the  bank.     This  verification  consists  of  three  main  steps: 

1.  The  finding  of  the  balance  shown  by  the  bank's  books. 

2.  The  comparing  of  the  bank's  figure  with  the  figure 
shown  by  the  check  stubs. 

3.  Accounting  for  the  difference  between  the  two  figures 
when  a  difference  exists. 

The  first  of  the  steps  mentioned  above,  the  finding  of 
the  balance  as  shown  by  the  books  of  the  bank,  is  usually 
accomplished  by  getting  the  bank  pass  book  balanced.  This 
procedure  results  in  the  bank's  recording  the  balance  in 
the  pass  book,  and  returning  all  checks  * '  cashed  "  up  to  the 
day  of  balancing. 

The  second  step,  comparing  the  bank  pass  book  balance 
with  the  check  stub  balance,  involves  a  simple  compari- 
son of  figures.  If  the  two  amounts  agree  the  third  step 
in  the  verification  of  the  check  stub  figure  is  unnecessary. 

The  third  step,  accounting  for  the  difference  between 
the  pass  book  and  the  check  stub  figures,  if  one  exists, 
is  the  one  called  ** Reconciling  the  checking  account."  It 
usually  consists  in  preparing  a  bank  reconciliation  state- 
ment in  the  form  shown  in  Illustration  24.  Such  state- 
ment is  usually  prepared  on  the  back  of  the  last  check 
stub  used  up  to  the  time  of  reconciliation. 

This  bank  reconciliation  statement  is  typical  of  the 
average  one  prepared  on  the  farm.  It  shows  the  element 
or  elements  that  cause  the  difference  between  the  bank 
pass  book  balance  and  the  check  stub  balance.    Such  dif- 


<  t 


110  FARM  ACCOUNTING 

ference  is  usually  caused  only  by  the  fact  that  some  of  the 
checks  issued  have  not  been  presented  at  the  bank.  The 
amount  of  a  check  is  deducted  from  the  check  stub  bal- 
ance as  soon  as  issued.  It  is  deducted  from  the  balance 
on  the  bank's  books  only  when  the  check  reaches  the  bank, 
often  several  days  later.  As  a  result  it  is  quite  common 
on  any  given  date  to  find  a  difference  between  the  amount 
the  bank  shows  as  being  on  deposit,  and  the  amount  the 
check  stubs  show.  The  amount  that  should  be  used  in 
verifying  the  Cash  account  is  the  check  stub  balance,  since 
it  shows  how  much  more  one  may  draw  out  of  the  bank. 
The  bank's  figure  is  usually  larger  than  the  check  stub 
balance  but  it  is  subject  to  a  deduction  at  any  time  when 
some  outstanding  check  is  presented. 

ILLUSTRATION  24 
Bank  Reconciliation  Statement 

Balance  per  bank  pass  book,  June  30,  1916 $1  415 

Less  checks  outstanding, 

No.  201  (for  example)  payable  to  Jas.  Brown 

issued  June  30,  1916 35 

Balance  per  check  stubs,  June  30,  1916 %i  330 

Illustration  24  shows  a  cheek  outstanding  for  $35  issued 
on  June  30,  1916,  to  Jas.  Brown,  meaning  that  the  latter 
has  not  presented  it  at  the  bank  for  payment.  By  refer- 
ring to  Illustration  18,  20  or  22  it  is  seen  that  Mr.  Brown 
was  paid  $35  for  labor.  Such  payment  is  recorded  on  the 
check  stubs  and  in  the  cash  book  or  cash  journal  at  the 
time  of  issue.  Hence  the  check  stub  balance  is  decreased 
by  that  amount.  In  this  case  it  leaves  the  check  stub  bal- 
ance $1380,  which  is  the  amount  used  in  the  calculation 
OP  page  108  in  verifying  the  balance  of  the  Cash  account. 

Errors  on  Check  Stubs.— It  happens  occasionally  that 


BOOKS  OF  ORIGINAL  ENTRY 


111 


i 


some  differences  arise  between  the  check  stubs  and  the 
bank  pass  book  that  cannot  be  accounted  for  by  outstand- 
ing checks.  Such  differences  are  usually  caused  by  an 
error  in  adding  or  subtracting  amounts  on  the  check  stubs. 
The  procedure  in  finding  such  errors  may  be  described 
briefly  as  consisting  of  sorting  the  checks  in  numerical 
or  date  order,  comparing  the  amounts  on  the  checks  with 
the  amounts  on  the  check  stubs,  and  verifying  all  addi- 
tions and  subtractions  on  the  check  stubs.  Before  com- 
pleting this  part  of  the  work,  it  is  always  desirable  also 
to  compare  each  deposit  recorded  in  the  bank  pass  book 
with  the  several  deposits  recorded  on  the  check  stubs.  The 
steps  just  enumerated  in  this  paragraph  should  be  suffi- 
cient to  find  all  differences  between  the  balance  shown  by 
the  check  stubs  and  the  bank's  balance,  whether  such  dif- 
ferences be  caused  by  outstanding  checks,  errors  in  addi- 
tion or  subtraction,  omission  of  a  check  or  wrong  entry 
on  the  check  stubs. 

Any  errors  found  on  the  check  stubs  should  be  cor- 
rected immediately  and  carried  through  to  the  last  bal- 
ance in  current  use.  If  the  error  is  the  entering  of  a 
check  for  the  wrong  amount,  such  error  will  require  cor- 
rection in  the  cash  journal  and  in  the  ledger  accounts,  if 
posting  has  been  done.  If  it  is  impossible  to  verify  the 
cash  balance  after  getting  the  checking  account  recon- 
ciled, it  usually  means  that  some  currency  has  been  paid 
out  or  received  without  being  entered  in  the  cash  journal. 
When  the  amount  of  such  difference  is  determined,  an 
entry  should  be  made  in  the  cash  journal  debiting  Gen- 
eral Expense  and  crediting  Cash,  if  the  cash  is  ** short,** 
or  debiting  Cash  and  crediting  Miscellaneous  Income  if 
the  cash  is  "over.*'  Cash  is  said  to  be  ** short'*  when  the 
balance  on  hand  and  in  the  bank  is  less  than  the  Cash  ac- 
count balance. 

In  summary,  then,  it  may  be  said  that  the  balance  per 


112 


FARM  ACCOUNTING 


r   * 


the  Cash  account  is  made  up  of  the  balance  per  check 
stubs  plus  cash  on  the  premises.  The  balance  per  check 
stubs  is  verified  by  comparing  it  with  the  balance  per  the 
bank  pass  book.  If  the  only  difference  between  the  pass 
book  balance  and  the  check  stub  balance  is  caused  by 
checks  outstanding,  no  further  steps  in  the  verification  are 
necessary.  If  some  of  the  difference  is  caused  by  errors 
on  the  check  stubs,  such  errors  should  be  traced  into  the 
book  of  original  entry  and  ledger  and  all  corrections  made. 

ILLUSTRATIVE  PROBLEMS 

1.  Using  the  transactions  of  Frank  Rodgers  given  under  Illus- 
trative Problem  2  of  Chapter  IV, 

(a)  make  journal  entries, 

(b)  post  them  to  the  ledger,* 

(c)  take  a  trial  balance  at  the  close  of  the  year, 

(d)  perform  similar  operations  using  the  transactions  of 
problem  3,  Chapter  IV,  posting  to  the  same  ledger  accounts  used 
in   (b)   above  when  possible. 

2.  With  the  same  sets  of  transactions 

(a)  make  cash  book  entries  for  all  cash  transactions,  and  sim- 
ple journal  entries  for  the  others. 

(b)  post  to  the  ledger,* 

(c)  take  a  trial  balance  at  the  close  of  each  year.  Complete 
the  cash  book  entries,  posting  and  trial  balance  of  transactions 
of  problem  2,  Chapter  IV,  before  beginning  entries  for  transac- 
tions of  problem  3,  Chapter  IV. 

3.  Using  the  same  transactions  again, 

(a)  make  entries  in  a  cash  journal, 

(b)  post  them,* 

(c)  take  a  trial  balance  at  the  close  of  each  year.    As  in  prob- 

*  Obviously,  the  ledgers  in  problems  1,  2  and  3  of  Illustrative 
Problems,  Chapter  V,  are  not  to  be  the  same  ones  used  in  the  problems 
referred  to  in  Chapter  IV.  They  are  to  be  different  ledgersj  but  are 
to  be  used  for  comparison  after  they  are  finished. 


BOOKS  OF  ORIGINAL  ENTRY 


113 


lem  2  above,  complete  the  trial  balance  for  the  first  year  before 
beginning  the  entry  of  the  second  year's  transactions  of  Mr. 
Rodgers.  The  money  columns  in  the  cash  journal  are  to  bear 
the  headings.  Labor  Dr.,  Cash  Dr.,  Sundry  Dr.,  Sundry  Cr., 
Cash  Cr.,  and  Poultry  Cr. 

4.  Prepare  for  an  oral  discussion  on  the  comparative  results 
of  problems  1,  2,  and  3  above,  and  the  effect  of  the  three  methods 

(a)  on  the  appearance  of  the  ledger  accounts, 

(b)  the  net  results  of  the  ledger  accounts,  and  (c)  on  the  trial 
balance. 

(d)  Also  compare  the  ledger  accounts  and  trial  balances  with 
those  constructed  from  the  same  set  of  transactions  when  the 
latter  were  placed  directly  into  the  ledger  accounts  as  in  prob- 
lems 2  and  3  of  Chapter  IV. 

5.  On  Sept.  30,  1917,  A.  E.  Long  verifies  his  cash  and  rec- 
onciles his  checking  account.  He  totals  the  cash  columns  of 
the  Cash  journal  in  pencil  to  date  and  records  a  debit  total  of 
$2160.38,  which  includes  the  balance  at  the  beginning  of  the 
year;  and  records  a  credit  total  of  $1328.48.  His  check  stubs 
show  a  balance  of  $820.31  and  he  counts  $11.59  in  his  pocket- 
book.  The  bank  pass  book  was  balanced  on  Sept.  30,  1917, 
showing  a  balance  of  $851.69.  In  comparing  the  canceled  checks 
returned  by  the  bank  with  the  check  stubs,  it  is  found  that 
check  No.  198  for  $25  and  check  No.  201  for  $6.38  issued  to  T. 
Somers  and  John  Walters,  respectively  have  not  been  "cashed" 
by  the  bank. 

You  are  asked  to  reproduce  the  statement  verifying  the  cash 
balance  in  accordance  with  the  facts  stated  above;  and  also  to 
show  the  bank  reconciliation  statement. 

6.  This  problem  is  to  be  worked,  considering  the  statements  of 
problem  5  above,  if  necessary. 

On  Dec.  31,  1917,  A.  E.  Long  again  verifies  his  cash  and 
reconciles  his  checking  account.  It  is  the  first  time  his  bank 
book  has  been  balanced  since  Sept.  30,  as  stated  in  problem  5 
above.  The  cash  journal  on  Dec.  31  shows  a  debit  total  of 
$3520.17  after  including  the  balance  carried  into  the  explanation 
column  on  Oct.  1,  and  a  credit  total  of  $2117.17.  All  checks 
and  items  deposited  have  been  entered  in  the  cash  journal  ex- 


I 


114  FARM  ACCOUNTING 

actly  as  they  were  recorded  on  the  check  stubs.  Cash  in  Mr. 
Longfs  pocketbook  on  Dec.  31,  is  $5.70.  During  the  three  months,' 
Sept.  30  to  Dec.  31,  1917,  $11.46  cash  had  been  received  and 
recorded  as  such  in  the  cash  journal,  that  was  not  deposited  in 
the  bank.  Also,  $17.15  was  recorded  in  the  cash  journal  as  hav- 
ing been  paid  aside  from  the  checks  issued  bearing  numbers  202 
to  208  inclusive. 

The  stubs  of  A.  E.  Long's  check  book  show  the  following  facts 
and  figures: 

Balance  check  stubs,  Sept.  30,  1917 $820  31 

Oct.  2  check  #202  for  general  expense 37  19 

S783  12 
Oct.  8  check  #203  for  equipment 85  00 

^  $698.12 

Oct.  15  deposit  (X  Elevator  Co.  for  com) 980.00 

XT      o   1     ,  $1,678.12 

Nov.  3  check  #204  for  labor,  T.  Somers 20.00 

$1,658.12 
Nov.  15  check  #205  for  labor  (sundry) SO  IQ 

XT     \.    .     ,  $1,627.96 

Nov.  21  check  #206  for  cattle 540.00 

$1,087.96 
Nov.  30  check  #207  for  general  expense 39 .  19 

*  $1  048  77 

Dec.  14  deposit  (sale  of  hogs) 185  00 

$1,223.77 
Dec.  22  deposit  (sale  of  oats) 183  33 

Dec.  30  check  #208  for  labor,  T.  Somers '  20.00 

Balance,  check  stubs  Dec.  31,  1917 ^   $1  387  10 


[ 


BOOKS  OF  ORIGINAL  ENTRY  115 

In  comparing  the  several  amounts  on  the  check  stubs  with 
the  bank  pass  book,  it  is  found  that  the  three  deposits  of  $980, 
$185  and  $183.33  correspond  exactly  with  the  deposits  shown  in 
the  bank  pass  book  for  the  three  months. 

The  checks  returned  by  the  bank  are  sorted  out  in  numerical 
order  and  are  found  to  bear  the  following  numbers  and  amounts : 

Check  No.  Amount 

198      $25.00 

202      37.19 

203      ; 85.00 

204      20.00 

205^      30.16 

206      540.00 

207      93.19 

The  pass  book  balance  is  $1369.48  on  Dec.  31,  1917. 

(a)  Prepare  a  statement  verifying  the  cash  balance  as  cal- 
culated from  the  cash  journal  figures  of  Dec.  31,  1917.  (There 
is  a  small  amount  which  he  cannot  account  for.  Perhaps  he 
lost  it.) 

(b)  Prepare  a  bank  reconciliation  statement  as  of  Dec.  31, 
1917. 

(c)  Explain  any  differences  or  irregularities  arising  in  the 
statements  prepared  under  (a)  and  (b)  above. 

(d)  Indicate,  in  the  proper  ways,  all  corrections  necessary  to 
make  A.  E.  Long's  books  and  records  correct  and  ready  for 
further  transactions. 

REVIEW  QUESTIONS 

1.  If  only  one  book  of  record  were  to  be  used  what  one  would 

it  be? 

2.  If  only  one  book  of  original  entry  were  to  be  used  what  one 

would  it  be? 

3.  Name  five  reasons  for  not  using  the  ledger  alone,  in  com- 

mercial accounting. 

4.  To  what  extent  do  these  reasons  apply  to  farm  accounting? 


116 


FARM  ACCOUNTING 


): 


i 


5.  How  does  the  use  of  books  of  original  entry  tend  to  prevent 

or  assist  in  finding  errors?     How  does  it  tend  to  cause 
errors? 

6.  What  is  the  purpose  of  books  of  original  entry? 

7.  What  information  should  be  recorded  in  books  of  original 

entry? 

8.  What  is  posting? 

9.  What  are  four  of  the  most  common  books  of  original  entry? 

10.  Which  ones  are  considered  practical   in  farm   accounting? 

Why? 

11.  What  is  the  nature  of  the  simple  journal? 

12.  In  what  form  are  journal  entries  made?    • 

13.  In  posting  from  the  journal  what  method  is  followed? 

14.  Are  there  as  many  or  more  items  in  the  ledger  when  it  is 

prepared  from  the  journal  as  when  it  is  prepared  from 
the  transactions  direct?     Why? 

15.  Describe  the  form  of  the  simple  cash  book. 

16.  What   debits   and  credits   are   expressed   on   the   left   haind 

side?    On  the  right  hand  side? 

17.  Can  the  cash  book  be  used  as  the  only  book  of  original  en- 

try in  a  business?     Discuss. 

18.  What   general   principle   is   followed   in   posting  from   the 

cash  book? 

19.  Why  is  the  cash  journal  practical  for  use  on  a  farm? 

20.  What  are  some  of  the  distinguishing  characteristics  of  the 

cash  journal? 

21.  Are  all  cash  journals  alike?    Discuss. 

22.  What  columns  are  always  found  in  a  cash  journal?    Why? 

23.  Describe  the  method  of  expressing  debits  and  credits  in  a 

cash  journal. 

24.  Describe  the  method  of  determining  whether  there  have  been 

debits  and  credits  of  equal  amount  entered. 

25.  Describe  the  process  of  posting  from  the  cash  journal. 

26.  Describe  optional  forms  of  cash  journals. 

27.  Discuss  the  relative  merits  of  the  simple  journal,  cash  book 

and  cash  journal,  with  respect  to  their  effects  upon  the 
ledger. 


BOOKS  OF  ORIGINAL  ENTRY 


117 


28.  Why  should  a  bookkeeper  know  something  about  preventing 

and  finding  errors? 

29.  Suggest  several  ways  of  preventing  errors  in  books  of  ac- 

count. 

30.  What  are  some  of  the  most  common  classes  of  errors? 

31.  How  should  one  proceed  systematically  to  locate  errors? 

32.  Discuss   errors   in    addition,    transposition    and   transplace- 

ment. 

33.  Why  is  it  important  that  errors  be  corrected  when  they  are 

found? 

34.  Suggest  a  way  of  correcting 

(a)  an  item  posted  to  the  wrong  account, 

(b)  one  posted  for  the  wrong  amount, 

(c)  one  posted  to  the  wrong  side  of  the  account, 

(d)  a  transaction  omitted  from  the  books. 

35.  How  is  the  balance  of  Cash  account  verified? 

36.  What  is  meant  by  reconciling  the  checking  account? 

37.  What    general   form   does    a   bank   reconciliation   statement 

assume  ? 

38.  What  is  an  outstanding  check? 

39.  Describe  the  detailed  procedure  in  locating  the  difference  be- 

tween the  check  stub  balance  and  the  bank  balance. 

40.  If  it  is  found  that  a  check  in  payment  of  Jas.  Brown^s 

wages  was  issued  for  $35,  but  entered  on  the  check  stubs 
and  in  the  cash  journal  as  $25,  what  corrections  are 
necessary? 


(I 


il 


CHAPTER  VI 

SPECIAL  ACCOUNTS  AND  ENTRIES 

In  illustrating  the  principles  of  the  financial  state- 
ments, the  ledger  and  books  of  original  entry,  only  a  lim- 
ited variety  of  farm  transactions  have  been  used.  Having 
a  working  knowledge  of  a  few  principles  of  debits  and 
credits  as  already  presented,  one  could  make  entries  for 
almost  any  transaction  that  might  arise.  The  principal 
difficulty  in  doing  this  would  lie  in  understanding  the 
exact  nature  of  the  transactions,  and  in  knowing  what 
the  customary  titles  of  some  of  the  special  accounts  are. 

Without  entering  the  field  of  farm  cost  accounting  as 
yet,  there  is  quite  an  important  group  of  transactions  that 
require  special  consideration.  Also,  some  of  the  accounts 
already  discussed  need  further  elaboration. 

Hired  Man. — When  a  hired  man  is  employed  regularly 
for  a  year  or  the  greater  part  thereof,  at  a  certain  wage 
per  month  or  week,  he  is  quite  often  paid  small  amounts 
from  time  to  time,  without  drawing  his  full  amount  at 
the  close  of  each  working  period.  In  such  cases,  a  per- 
sonal account  is  opened  with  the  hired  man,  bearing  his 
name.  At  the  close  of  each  month  or  week  his  account  is 
credited  with  the  agreed  wage,  and  labor  account  is  deb- 
ited. When  any  payment  is  made  to  him,  his  personal 
account  is  debited  and  Cash  is  credited.  The  balance  of 
his  account  will  then  show  at  any  time  just  how  much 
is  owing  to  him,  provided  all  postings  have  been  made. 
These  entries  are  in  accordance  with  a  rule  for  debiting 
and  crediting  accounts  of  individuals,  firms  or  corpora- 
tions.    The  hired  man  gives  his  services,  which  are  val- 

118 


J 


SPECIAL  ACCOUNTS  AND  ENTRIES         119 

uable,  so  the  farmer  credits  him.  That  shows  as  a  credit 
balance  in  the  hired  man's  account,  increasing  the  liabili- 
ties of  the  business.  Accordingly,  capital  is  decreased, 
since  liabilities  increase  without  a  corresponding  increase 
of  resources.  This  decrease  in  capital  is  shown  by  the  debit 
to  the  nominal  account  Labor,  which  is  a  subdivision  of 
the  capital  account  as  presented  in  Chapter  III. 

Notes  Receivable. — This  account  is  governed  largely  by 
the  general  principles  regulating  debits  and  credits  to 
property  accounts,  namely,  debit  when  received,  credit 
when  parted  with.  It  includes  all  negotiable  instruments 
other  than  checks,  bank  drafts,  and  money  orders  received 
into  the  business.  From  the  principles  governing  the  ac- 
count, it  is  obvious  that  it  should  always  have  a  debit  bal- 
ance, if  any;  and  that  a  credit  entry  should  not  be  made 
indicating  the  giving  out  of  a  note  unless  an  entry  has 
previously  been  made  indicating  the  receipt  of  the  same 
note.  Credit  entries  usually  indicate  that  the  note  was 
given  out  upon  the  receipt  of  cash  from  the  maker.  It  is 
proper,  however,  to  credit  the  account  when  the  note  is 
given  out  for  any  reason.  If,  for  example,  it  is  endorsed 
over  to  Mr.  A  in  settlement  of  a  debt.  Notes  Receivable 
account  is  credited  and  Mr.  A's  account  debited.  If  it 
is  discounted  at  the  bank.  Notes  Receivable  account  is 
credited  for  the  face  of  the  note  and  Cash  debited  for  the 
amount  of  cash,  and  Interest  or  General  Expense  debited 
for  the  discount  deducted,  thus: 

Cash $98 

Interest 2 

Notes  Receivable $100 

This  entry  indicates  that  a  note  whose  face  value  is 
$100,  previously  received  from  someone  else,  has  been  dis- 
counted, $2  being  deducted  by  the  bank  for  discount.  In 
commercial  accounting  it  is  considered  better  in  this  spe- 


120 


FARM  ACCOUNTING 


V  \ 


cific  case  to  credit  "Notes  Receivable  Discounted"  ac- 
count until  the  maturity  of  the  note.  This  is  not  consid- 
ered necessary  in  farm  accounting. 

In  all  cases  it  should  be  noted  that  Notes  Receivable 
account  is  debited  or  credited  for  the  face  of  the  note,  ex- 
cept that  credits  for  less  than  the  face  may  be  made  if 
payments  are  made  on  the  installment  plan.  Interest  on 
notes  is  never  entered  in  the  Notes  Receivable  account. 
Any  balance  in  the  Notes  Receivable  account  is  a  resource. 

Notes  Payable. — The  principles  just  stated  concerning 
face  value  and  interest  of  Notes  Receivable  apply  also  to 
Notes  Payable,  except  that  the  partial  payments  of  the 
note  are  debited  to  the  Notes  Payable  account,  instead  of 
being  credited. 

Notes  Payable  account  is  credited  when  we  give  our  note 
to  someone  else,  or  when  we  give  out  any  negotiable  in- 
strument on  which  we  are  primarily  liable  as  maker  or 
acceptor.  It  is  debited  when  the  instrument  is  paid  by 
us  or  returned  to  us  for  some  other  reason.  Any  balance 
in  Notes  Payable  account  is  a  liability. 

Notes  Receivable  and  Payable  Distinguished.— Both  in 
case  of  Notes  Receivable  and  Notes  Payable  accounts  a 
credit  entry  is  made  when  a  negotiable  instrument  is 
parted  with  by  the  business.  For  that  reason  it  is  diffi- 
cult for  some  to  determine  whether  to  credit  Notes  Receiv- 
able or  Notes  Payable  in  any  given  case.  The  test  should 
always  be,  **Who  is  primarily  liable  on  the  instrument?'* 
If  we  are  primarily  liable,  credit  Notes  Payable,  thus  cre- 
ating a  Liability.  If  someone  else  is  primarily  liable, 
credit  Notes  Receivable.  Another  test  is  also  helpful. 
Notes  Payable  account  is  always  credited  with  the  face 
of  a  note  before  it  is  debited;  Notes  Receivable  is  always 
debited  before  it  is  credited.  Notes  Payable  always  has 
a  credit  balance  if  any.  Notes  Receivable  always  has  a 
debit  balance  if  any. 


I 


SPECIAL  ACCOUNTS  AND  ENTRIES         121 

The  same  principles  govern  mortgage  notes.  The  lat- 
ter are  sometimes  shown  under  separate  accounts  because 
of  the  nature  of  the  security  accompanying  the  notes  rather 
than  because  of  any  material  difference  in  the  negotiable  in- 
struments themselves. 

Checks,  bank  drafts  and  money  orders  are  considered 
as  cash,  and  are  so  entered  when  received  or  given. 

Land  and  Buildings.— This  account  is  sometimes  used 
to  record  transactions  concerning  land  and  buildings. 

In  farm  accounting,  as  in  most  kinds  of  commercial 
accounting,  it  is  better  to  keep  two  accounts,  one  for  land 
and  one  for  buildings.  These  may  be  subdivided  to  care 
for  different  parcels  of  land  or  different  buildings. 

Land.— Land  account  is  debited  with  the  original  cost  of 
the  land,  if  accounts  are  being  kept  at  the  time  of  pur- 
chase. If  books  of  account  are  opened  after  land  is  in 
one's  possession,  debit  the  account  with  a  fair  market  value 
of  the  land  at  the  time  of  opening  the  books.  Land  in- 
herited after  the  books  of  account  are  opened  is  charged 
to  the  account  at  a  fair  market  value  at  the  time  of  in- 
heritance. 

The  account  is  also  charged  with  any  special  assessments 
'  levied  (usually  applying  to  city  rather  than  rural  prop- 
erty), with  any  recording  costs,  attorney's  feeg  or  other 
necessary  expense  up  to  the  time  title  passes  to  the  pur- 
chaser. It  is  -charged  with  cost  of  clearing,  minus  income 
from  timber ;  ^  with  the  cost  of  any  permanent  improve- 
ments as  tiling,  fencing,  or  dredging,  except  that  annual 
or  periodical  dredging  in  a  stream  should  be  charged  to 
General  Expense.  A  new  fence  or  '* stretch"  of  tiling  to 
replace  parts  worn  out  should  also  be  charged  to  General 

"This  does  not  mean  that  the  cost  of  operating  a  lumber  camp  is 
charged  to  Land  account.  It  refers  only  to  clearing  on  a  small  scale, 
except  that  removal  of  stumps  from  a  large  deforested  area  would 
be  charged  to  land. 


;( 


H^ 


FARM  ACCOUNTING 


» 


Expense,  except  that  in  cost  accounting,  tile  repairs  are 
charged  to  the  field.  However,  if  the  new  fence  is  more 
substantial  and  valuable  than  the  original,  or  if  the  new  til- 
ing is  larger,  replacing  an  inadequate  size,  Land  account 
may  be  charged  with  part  of  the  cost.  It  may  be  charged 
with  that  part  represented  by  the  excess  cost  of  the  new 
fence  or  tiling  over  the  present  cost  to  construct  a  fence 
or  lay  tile  of  the  type  of  the  old  ones.  The  remainder  of 
the  cost  is  charged  to  General  Expense,  unless  a  general 
repair  account  is  kept,  or  cost  records  enable  a  specific 
field  to  be  charged. 

Land  account  should  not  be  charged  with  any  amount 
to  represent  increase  in  value,  commonly  called  apprecia- 
tion. To  do  so  would  be  figuring  something  as  a  profit  that 
had  not  been  earned.  Land,  except  through  crops,  does 
not  make  a  profit  until  it  is  sold.  If  it  were  debited  with 
the  increase  in  value  the  Loss  and  Gain  account  would  be 
credited.  This  would  inflate  the  profits  for  the  year.  If 
fluctuations  in  land  are  to  be  recorded  on  the  books,  de- 
creases in  value  should  be  recorded  also.  If  bad  crops 
caused  land  to  decrease  in  value,  the  next  year,  an  entry 
should  be  made,  debiting  Loss  and  Gain  and  crediting 
Land  to  show  the  decrease  in  value  of  property.  This 
would  be  a  fictitious  loss  for  the  year  in  addition  to  the 
actual  loss  incurred  because  of  poor  crops. 

As  long  as  land  is  held  primarily  for  agricultural  pur- 
poses, no  loss  or  gain  should  be  recorded  in  the  books  until 
it  is  sold.  If  it  is  sold  for  more  than  the  book  value,  the 
result  is  a  gain;  if  for  less,  it  is  a  loss.  For  illustration, 
if  the  book  value  of  a  piece  of  land  is  $8000  and  it  is  sold 
for  $10,000  cash,  the  entry  for  the  sale  is: 


Cash $10,000 

Land 

Loss  and  Gain 


$8,000 
2,000 


SPECIAL  ACCOUNTS  AND  ENTRIES         123 

If  it  is  sold  for  $7000  the  entry  is: 

Cash $7,000 

Loss  and  Gain 1,000 

Land $8,000 

If  one-half  of  the  area  is  sold  for  $5000,  assuming  it  is 
of  uniform  value,  the  entry  is : 

Cash $5,000 

Land $4,000 

Loss  and  Gain I^OOO 

This  leaves  the  Land  account  with  a  debit  balance  of 
$4000,  representing  the  book  value  of  the  half  remaining 
unsold.    The  profit  of  $1000  is  made  on  the  part  sold. 

Buildings.— Buildings  account  is  debited  with  the  cost 
of  buildings  at  the  time  of  erection,  the  appraised  value 
at  time  of  opening  books  or  at  time  of  inheritance  in  ac- 
cordance with  the  principles  stated  for  Land  account.  The 
same  principles  also  apply  for  repairs,  additions  and  re- 
placements, and  for  sale  of  structures. 

The  principal  points  of  difference  between  Land  and 
Building  accounts  are  appreciation  and  depreciation.  The 
question  of  appreciation  seldom,  if  ever,  arises  in  connec- 
tion with  buildings.  The  matter  of  depreciation,  however, 
does  arise.  That  is  the  principal  reason  for  keeping  land 
and  buildings  under  separate  accounts. 

Depreciation  is  discussed  under  separate  title  later  in 
this  chapter.  Building  depreciation  is  taken  up  there 
briefly,  although  it  does  not  call  for  much  special  com- 
ment. It  should  be  stated,  however,  that  the  common 
statement  so  often  made  in  connection  with  farm  records 
that  *' depreciation  of  buildings  is  offset  by  appreciation 
in  land*'  is  not  upheld  by  scientific  principles  of  account- 
ing. 

Mixed  Accounts  in  a  Trading  Business.— The  class  of 


124 


FARM  ACCOUNTING 


accounts  known  as  mixed  accounts  has  received  much  jus- 
tified criticism  when  used  in  commercial  accounting.  The 
most  prominent  account  of  this  nature  in  trading  concerns 
is  merchandise.  It  is  called  a  mixed  account,  because  it 
does  not  come  under  any  of  the  other  classes,  but  is  a 
combination  of  several.  It  does  not  show  a  resource,  an 
expense  or  an  income  exclusively,  but  contains  entries  rep- 
resenting resources,  expenses  and  incomes  all  together. 
The  Merchandise  account  is  debited  with  the  value  of 
the  goods  on  hand  at  the  beginning  of  the  period,  with  the 
cost  of  goods  purchased,  with  freight  and  drayage  on 
goods  purchased,  and  is  credited  with  the  selling  price  of 
goods  and  with  the  inventory  of  goods  on  hand  at  the; 
close  of  the  period.  Any  purchases  or  sales  returned  are 
also  credited  or  debited  respectively  to  the  merchandise 
account.  After  making  entries  as  noted,  any  credit  bal- 
ance remaining  in  the  account  indicates  a  gross  profit,  any 
debit  balance  represents  a  gross  loss. 

The  criticism  of  the  account  is  based  on  the  fact  that 
it  must  be  analyzed  in  order  to  show  correct  results.  The 
total  credits  cannot  be  taken  as  sales,  for  some  of  the 
credits  are  usually  for  purchases  returned  at  cost  price. 
Likewise  the  total  debits  do  not  usually  show  the  pur- 
chases because  some  of  the  debits  are  at  sale  price  repre- 
senting returned  sales. 

In  place  of  the  Merchandise  account  several  accounts 
are  used  as  subdivisions  of  the  account  as  follows:  Pur- 
chases, Sales,  Returned  Purchases,  Returned  Sales,  Inven- 
tory, Freight  and  Drayage-In.  At  the  close  of  a  fiscal 
period  these  several  account  balances  are  brought  together 
into  a  Trading  account  to  find  the  net  result. 

Mixed  Accounts  on  the  Farm. — In  farm  accounting 
the  mixed  account  cannot  he  condemned  to  the  extent  that 
it  is  in  commercial  accounting  for  four  reasons,  (a)  The 
work  of  keeping  extra  accounts  in  place  of  the  mixed  ac- 


SPECIAL  ACCOUNTS  AND  ENTRIES         125 

count  does  not  warrant  their  use,  since  an  analysis  of  the 
mixed  accounts  on  the  farm  is  not  as  essential  and  the 
entries  in  any  one  account  are  so  few  in  number,     (b) 
The  kinds  of  commodities  requiring  mixed  accounts  on 
the  farm  are  more  numerous  than  in  the  average  trading 
business,   and  represent  departments   of  farming   opera- 
tions, the  main  object  of  which  is  to  find  the  profit  or  loss 
in  each,     (c)  There  is  seldom  occasion  in  farming  transac- 
tions to  record  returned  commodities.     Consequently  the 
mixed  accounts  on  the  farm  almost  invariably  contain, 
aside  from  inventories,  only  items  at  cost  price  on  the 
debit  side,  and  at  selling  price  on  the  credit  side,     (d) 
In  case  of  farm  animals  there  are  additions  due  to  the 
natural  increase  which  are  not  taken  into  account,  except 
through  the  inventory  at  the  close  of  the  fiscal  period. 
The  mixed  account  affords  the  best  way  of  accounting  for 
the  natural  increase. 

The  most  common  mixed  accounts  on  the  farm  are  those 
representing  the  commodities  from  which  an  income  is  de- 
rived, as  the  livestock  accounts  and  grain  accounts.  The 
equipment  used  in  production  is  also  recorded  in  mixed 
accounts  sometimes,  but  it  is  better  not  to  keep  the  ex- 
penses and  incomes  from  this  class  of  resource  in  the  re- 
source account.  This  is  especially  true  in  cost  accounting. 
Horses. — On  the  average  farm  where  the  primary  object 
of  keeping  horses  is  to  assist  in  the  farm  work.  Horses  ac- 
count is  debited  with  the  inventory  value  of  horses  on  hand 
at  the  beginning  of  the  fiscal  period  and  with  any  expenses 
incurred  on  their  behalf  during  the  period.  It  is  cred- 
ited with  any  income  from  the  use  or  sale  of  horses  and 
with  the  inventory  value  of  all  horses  on  hand  at  the  close 
of  the  year.  The  balance  represents  a  loss  or  gain  for 
the  year. 

In  cost  accounting  it  is  advisable  to  keep  separate  ac- 
counts for  work  horses  and  other  horses,  if  any  general 


126 


FARM  ACCOUNTING 


!'i 


attempt  is  made  to  raise  horses  for  the  market.  If  a  horse 
or  colt  is  sold  only  occasionally,  it  should  be  considered 
as  an  income  arising  because  of  the  general  plan  to  keep 
enough  horses  on  hand  to  perform  the  work  economically. 
That  is,  the  occasional  sale  would  not  require  an  account 
for  other  horses. 

Swine.— The  Swine  account  is  charged  with  the  inven- 
tory value  of  all  swine  on  hand  at  the  beginning  of  the 
year  and  with  all  expenses  incurred  on  their  behalf.  It  is 
credited  with  the  selling  price  of  all  swine  sold  and  with 
the  farm  value  of  all  swine  slaughtered  for  consumption 
by  the  farmer's  household.  At  the  close  of  the  fiscal  year 
it  is  credited  with  the  inventory  value  of  all  swine  on  hand. 
The  balance  of  the  account  then  shows  the  loss  or  gain 
as  a  result  of  raising  swine. 

Cattle.— An  account  with  Cattle  is  kept  when  it  is  de- 
sired to  find  out  how  much  is  being  made  or  lost  as  a 
result  of  keeping  cattle  on  the  farm. 

If  one  engages  in  dairy  farming  and  also  in  beef  cattle 
raising,  it  is  better  to  keep  a  record  of  the  results  of  each 
class  separate.  For  this  purpose,  two  accounts  called  Dairy 
Cattle  and  Beef  Cattle  respectively  are  maintained,  each 
to  show  the  results  of  its  specific  class. 

It  is  not  advisable  to  keep  the  two  accounts  if  one  of 
the  lines  mentioned  is  entirely  subsidiary.  That  is,  if  the 
main  cattle  industry  on  a  farm  is  that  of  dairying,  but  a 
few  steers  or  heifers  are  sold  in  the  market  each  year, 
it  is  not  necessary  to  keep  an  account  with  beef  cattle. 
Such  sales  are  considered  as  an  essential  part  of  the  main 
purpose  of  keeping  the  dairy  herd  up  to  standard.  Like- 
wise, if  the  main  cattle  industry  is  that  of  feeding  for 
market,  but  one  or  two  cows  are  kept  for  dairy  purposes, 
only  the  Beef  Cattle  account  is  required. 

Cattle  account  is  one  of  the  several  accounts,  needed  in 
a  farm  ledger,  which  are  of  a  peculiar  type,  from  an  ac- 


SPECIAL  ACCOUNTS  AND  ENTRIES         127 

counting  point  of  view.     It  must  record  sales  of  the  re- 
source itself  and  sales  of  the  product.     It  is  impossible 
to  keep  accurate,  separate  cost  accounts  of  the  cattle  as 
livestock  and  of  the  products  of  the  cattle  as  milk,  cream 
and  butter.     The  difficulty  from  a  cost  accounting  view- 
point lies  in  the  fact  that  the  costs  cannot  be  divided  ac- 
curately.   When  feed  is  given  to  a  dairy  cow  it  is  quite 
impossible  for  the  farmer  to  state  what  proportion  of  the 
value  of  the  feed   contributes  to  the   cost   of  the  dairy 
products  and  what  proportion  to  the  up-keep  of  the  animal. 
If  one  is  in  the  dairy  business  selling  products  and  also 
selling  pure  bred  dairy  cattle,  it  is  advisable  to  keep  an 
account  called  Dairy  Products,  and  one  called  Dairy  Cattle 
Under  such  conditions  the  Dairy  Products  account  is  cred- 
ited with  all  income  from  the  sale  of  dairy  products  to 
outsiders  or  to  the  household,  and  is  debited  with  the  costs 
of  producing  and   marketing  the   products.     The   Dairy 
Cattle  account  would  contain  entries  for  the  inventory  at 
the  beginning  and  close  of  the  period.    It  would  be  debited 
with  all  costs  of  up-keep  of  the  herd  and  credited  with  all 
income  from  sale  of  members  of  the  herd. 

At  the  close  of  the  year  the  Dairy  Products  account  is 
closed  into  the  Dairy  Cattle  account.  After  crediting  the 
Cattle  account  with  the  inventory  value  of  animals  on 
hand  at  the  close  of  the  year,  any  balance  is  transferred 
to  Loss  and  Gain  account. 

Poultry.— As  suggested  in  connection  with  the  Dairy 
Cattle  and  Dairy  Products  accounts  outlined  above  Poul- 
try account  presents  the  twofold  results  of  the  income 
from  sale  of  property  and  the  income  from  sale  of  product 
without  any  basis  for  dividing  the  expenses.  That  is  in 
cost  accounting  it  is  difficult,  or  rather,  impossible  to 'de- 
termine how  much  of  the  feed  consumed  by  chickens  is 
to  be  charged  against  the  eggs  and  how  much  against  the 
poultry,  if  two  accounts  are  kept.     Accordingly,  if  two 


I 

i 


I 


128 


FARM  ACCOUNTING 


accounts  are  kept,  it  merely  assists  in  finding  the  income 
from  eggs  throughout  the  year  as  a  separate  item  to  be 
transferred  to  the  credit  of  Poultry  account  at  the  close 
of  the  year.  The  net  profit  on  eggs  cannot  be  found  sep- 
arately from  the  net  profit  on  poultry  except  through  the 
use  of  estimates  or  averages.  The  net  profit  from  the 
handling  of  eggs  can  be  found  if  the  Eggs  account  is 
charged  with  all  costs  in  connection  with  them  after  they 
are  laid ;  and  credited  with  the  selling  price  of  those  sold 
and  used. 

However,  for  all  practical  purposes,  one  account  with 
poultry  is  sufBcient  unless  it  is  desired  to  keep  the  Eggs 
account  merely  for  the  purpose  of  crediting  it  with  the 
income,  which  is  transferred  to  Poultry  account  at  the 
close  of  the  year.  After  crediting  Poultry  account  with 
the  inventory  value  of  fowls  on  hand  at  the  close  of  the 
year,  any  balance  remaining  is  transferred  to  Loss  and 
Gain  account. 

Sheep. — Sheep  account  is  another  of  the  mixed  accounts 
to  which  the  same  principles  apply  as  have  been  brought 
out  in  connection  with  cattle  and  poultry.  In  this  case, 
however,  there  is  not  as  good  a  reason  for  keeping  a  sep- 
arate account  for  wool  as  there  is  for  dairy  products  and 
eggs,  since  the  sales  of  this  product  do  not  require  as  many 
entries  in  the  course  of  a  year.  It  would  be  a  very  easy 
matter  to  pick  out  from  the  credit  side  of  Sheep  account 
the  item  or  items  representing  sales  of  wool,  if  one  wished 
to  find  out  at  the  close  of  the  year  how  much  of  the  total 
income  was  due  to  the  sale  of  sheep  and  how  much  to 
the  sale  of  wool. 

Equipment.— The  title  **  Equipment '*  is  used  to  desig- 
nate the  account  with  farm  implements  and  tools  of  va- 
rious sorts. 

Some  writers  on  the  subject  advocate  the  separation  of 
Equipment  account  into  several  classes,  depending  upon 


SPECIAL  ACCOUNTS  AND  ENTRIES         129 

the  use  made  of  the  various  equipment  units.  For  exam- 
ple, there  might  be  hay  machinery,  corn  machinery,  grain 
machinery,  etc.  This  separation  is  suggested  by  some  in 
cost  accounting  systems  in  order  to  facilitate  the  charge 
to  the  various  crops  for  machinery  depreciation.  It  has 
been  found  by  experiment  that  a  better  and  easier  method 
exists.  This  method  is  presented  in  Chapter  IX  on  cost 
accounting. 

A  separate  account  for  the  Farm  Tractor  may  be  kept 
if  one  wants  to  find  out  its  cost  of  operation  without  much 
analysis  at  the  close  of  the  year.  Likewise,  any  special 
machines  as  hay  balers,  corn  shredders  and  threshing  ma- 
chine outfits  may  have  special  accounts  of  a  mixed  nature 
to  show  the  income,  expenses  and  inventory  values  of 
each  special  type  of  such  machinery.  Such  accounts  would 
be  operated  in  the  same  way  as  any  other  mixed  accounts, 
being  debited  with  beginning  inventory  and  expenses  and 
credited  with  income  and  closing  inventory.  The  net  gain 
or  loss  would  be  transferred  to  Loss  and  Gain  account. 

Faim  Crops.— There  is  no  account  called  ''farm  crops,'* 
but  the  title  is  used  as  a  basis  for  discussing  grain  and 
forage  accounts  in  general.  There  is  no  distinguishing 
characteristic  that  requires  one  of  this  class  of  accounts 
to  be  treated  in  a  different  manner  from  the  others. 

^  A  crop  account  is  debited  with  the  inventory  at  the  be- 
ginning of  the  period  and  with  expenses  incurred,  and 
is  credited  with  the  sale  of  the  commodities,  and  the  in- 
ventory, at  the  close  of  the  year.  In  cost  accounting  it  is 
debited  with  all  ascertainable  costs  of  production  up  to 
time  of  harvest,  as  transferred  from  the  field  account ;  and 
with  all  subsequent  costs  in  connection  with  the  specific 
crop,  and  is  credited  with  the  value  of  feed  sold  and  that 
consumed  on  the  farm  by  livestock  or  in  the  household. 
When  a  cost  system  is  not  used,  any  balance  remaining  in 
a  crop  account,  after  crediting  it  with  the  inventory  at 


130 


FARM  ACCOUNTING 


%i 


the  close  of  the  period,  is  transferred  to  Loss  and  Gain 
account. 

Household. — The  Household  account  is  one  of  the  first 
ones  that  should  be  established  in  any  system  of  farm 
accounts.  This  does  not  necessarily  mean  that  it  is  the 
first  one  to  be  studied.  This  account  contains  all  transac- 
tions involving  the  personal  affairs  of  the  farmer  and  his 
family  as  opposed  to  the  other  accounts  which  relate  to 
his  operations  as  a  farmer. 

Household  account  has  no  parallel  in  commercial  ac- 
counting. It  might  arise  in  commercial  accounting,  if  the 
doctor,  the  lawyer,  or  the  merchant  recorded  his  expenses 
for  groceries,  clothes,  amusements  and  similar  items  among 
his  business  expenses.  In  case  of  the  doctor,*  he  records 
his  expenses  and  fees  in  a  set  of  books  at  the  office.  At 
the  close  of  the  year  he  finds  from  the  Loss  and  Gain  ac- 
count how  much  he  has  made  as  a  doctor.  If  it  is  $50,000, 
for  example,  it  is  considered  that  he  has  made  a  success  in 
his  profession. 

Had  the  doctor  recorded  all  expenses  of  maintaining  his 
house  in  the  set  of  books  at  the  office,  results  might  have 
been  different.  For  example,  suppose  his  family  had  lots 
of  clothes,  entertained  lavishly  and  took  vacations  at  a 
fashionable  summer  or  winter  resort,  as  a  result  of  which 
the  Loss  and  Gain  account  of  the  doctor's  office  books 
showed  a  loss  of  $1000  at  the  close  of  the  year.  It  might 
lead  to  false  conclusions  if  one  did  not  stop  to  analyze  the 
situation. 

It  might  lead  to  the  conclusion  that  he  was  not  a  suc- 
cessful physician.  The  facts,  when  known,  however,  are 
that  he  was  a  good  physician,  from  a  business  point  of 
view  at  least ;  but  the  standard  of  living  of  his  family  did 
not  permit  him  as  an  individual  to  be  any  better  off  at  the 
close  of  the  year  than  at  the  beginning,  in  spite  of  his 
earnings  in  his  profession. 


I 


* 

U 


111 


SPECIAL  ACCOUNTS  AND  ENTRIES         131 

The  physician  can  easily  avoid  that  apparent  misrepre- 
sentation of  his  books,  by  keeping  two  sets  of  books,  one 
at  the  office,  and  one  at  the  house. 

The  farmer,  however,  finds  this  to  be  very  impractical 
if  not  impossible.  The  household  is  so  near  to  the  busi- 
ness, in  his  case,  and  the  activities  are  so  interwoven  that 
it  is  almost  forgotten  that  the  farm  is,  in  a  business  sense 
at  least,  separate  from  the  house  to  which  the  man  goes 
after  finishing  his  day's  work. 

However  nearly  related  the  household  and  farm  may  be, 
it  is  necessary  to  keep  the  records  of  the  farmer  in  such 
a  way  that  it  can  be  easily  determined  what  his  profit  is 
from  the  farming  business  and  what  it  is  as  an  individual. 

For  this  purpose,  the  Household  account  is  one  of  the 
accounts  that  should  always  be  found  in  the  farm  ledger. 
In  it  are  recorded  all  transactions  of  the  household  with 
the  farm  proper  or  with  outside  parties.  In  fact  it  is  con- 
sidered that  all  property  in  the  beginning  belongs  to  the 
farm  with  the  exception  of  household  furnishings  and  uten- 
sils. At  any  time  subsequently  the  Household  is  debited 
for  what  it  uses  of  the  farm's  resources  or  services  and  is 
credited  for  the  value  of  its  resources  or  services  used  by 
the  farm. 

Briefly,  the  Household  is  debited  for  everything  bought 
for  its  use,  and  for  everything  contributed  to  it  by  the 
farm  in  the  way  of  livestock  and  their  products,  grain, 
fuel  or  other  commodities.  It  is  credited  for  any  services 
given  to  the  farm  by  members  of  the  household.  This  in- 
cludes the  time  of  the  owner  of  the  farm  or  any  of  his 
family  and  the  board  and  lodging  of  hired  help. 

In  the  closing  process  at  the  end  of  the  fiscal  year,  the 
Household  account  is  credited  with  the  inventory  value  ^ 
of  household  and  personal  belongings  on  hand.  Such  in- 
ventory includes  all  house  furnishings,  utensils,  jewelry, 
*See  Appendix  A,  Pricing  Inventories. 


13£ 


FARM  ACCOUNTING 


books  and  other  articles  not  subject  to  immediate  consump- 
tion, that  are  chargeable  to  the  Household  at  the  tim^  of 
•  purchase.  The  house  itself  is  not  included  in  the  inventory 
of  household  property.  It  is  considered  as  part  of  the 
farm  property,  for  which  the  household  is  charged  with 
rent  or  interest. 

It  has  been  found  by  investigation  ^  in  483  farm  families 
in  ten  states  scattered  through  the  east,  south  and  middle 
west  that  the  farm  contributed  to  the  household  annually 
products  and  utilities  valued  at  the  following  average 
amounts  per  family  per  year:  food  $261.35,  fuel  $34.72, 
use  of  house  (rent)  $125.10,  a  total  of  $421.17  per  family 
or  $91.97  per  person.  None  of  these  items  include  articles 
of  food  or  fuel  purchased  away  from  the  farm. 

Statistics  obtained  from  the  same  483  families  show  that 
the  average  cost  of  board  per  person  was  $14.64  a  month. 
This  means  that  hired  labor  costs  more  than  the  cash  paid 
for  wages  and  that  the  household  should  be  given  credit 
for  this  additional  amount  representing  board  and  lodging. 

Labor. — As  stated  under  the  Hired  Man's  account.  Labor 
account  is  debited  with  the  weekly  or  monthly  wage  as 
soon  as  it  is  earned,  the  hired  man  being  credited  in  an 
account  bearing  his  name.  It  is  an  expense  of  operation 
as  soon  as  the  work  is  performed.  It  is  not  necessary  to 
wait  until  cash  is  paid  before  debiting  Labor  account.  In 
the  ease  of  irregular  or  transient  help,  Labor  account  is 
debited  only  when  the  cash  is  paid.  It  is  unnecessary  to 
keep  personal  accounts  with  hired  help  except  those  who 
work  for  a  season  or  more. 

Board  of  Laborers. — ^Labor  account  is  also  debited  with 
the  value  of  board  and  lodging  contributed  to  the  hired 
help  by  the  household.  It  is  most  convenient  to  make  an 
entry  for  such  items  at  the  close  of  each  month. 

The  entry  for  labor  performed  by  a  hired  man  employed 

'  U.  8.  Department  of  Agriculture.    Farmer 's  Bulletin  635. 


SPECIAL  ACCOUNTS  AND  ENTRIES         133 

regularly  and  receiving  board  and  lodging  might  be  made 
under  either  of  two  methods.  Assume  the  contract  with 
John  Morningstar  is  for  $30  a  month  with  board  and  lodg- 
ing, the  latter  being  valued  at  $15  a  month.      . 

Method  I 
Labor 145 

John  Morningstar. ..  139 

Household 15 

Method  II 
Labor 545 

John  Morningstar. . .  ^45 

John  Morningstar 15 

Household 15 

Method  I  interprets  the  transaction  as  meaning  that  the 
total  cost  of  labor  is  $45,  and  that  a  liability  of  $30  to  John 
Morningstar  is  to  be  created  showing  that  that  is  all  which 
IS  owing  to  him  at  the  end  of  the  month.  He  is  really 
paid  the  other  $15  in  installments  of  board  and  lodging  by 
the  household  each  day  as  he  is  earning  it.  Method  II  is 
quite  similar  to  Method  I,  but  it  requires  two  entries,  one 
to  credit  the  hired  man  with  the  full  amount  that  he  earns 
during  the  month  and  the  other  one  to  show  immediately 
that  he  has  been  paid  $15  of  it  by  the  household  in  the 
form  of  board  and  lodging.  Either  method  shows  the  same 
net  results.  For  that  reason  Method  I  is  preferable  on 
account  of  its  simplicity. 

Labor  of  the  Parmer's  Family.-The  value  of  the  labor 
of  the  proprietor  and  other  members  of  the  household 
should  be  charged  to  Labor  account  at  a  reasonable  average 
rate  at  some  time  before  closing  it  into  Loss  and  Gain  ac- 
count or  before  distributing  labor  over  the  various  farm 
accounts,  as  is  done  in  cost  accounting.  The  entry  for 
such  labor  can  be  made  in  a  lump  sum  at  the  close  of  the 


I 


1S4  FARM  ACCOUNTING 

year,  crediting  Household.  If  some  of  the  boys  of  the 
family  work  for  a  stipulated  amount  which  is  considerably 
less  than  current  prices  for  similar  help,  debit  Labor  and 
credit  Cash  or  the  Son's  account  as  in  case  of  a  regular 
hired  man,  and  then,  at  the  close  of  the  year,  debit  Labor 
and  credit  Household  with  enough  to  make  his  total  labor 
charge  equal  to  that  of  a  hired  man  of  equal  ability.  For 
example,  if  a  20-year-old  son,  Tom,  works  for  his  father 
for  $10  a  month  and  board  and  lodging,  the  entry  at  the 
close  of  each  month  would  be: 

Labor $25.00 

Tom $10.00 

Household 15.00 

Then  at  the  close  of  the  year,  when  it  is  found  that  the 
average  wage  of  hired  men  is  $30  a  month  with  board  and 
lodging,  make  this  additional  entry : 

Labor $240.00 

Household $240.00 

This  entry  is  the  result  of  the  following  calculations : 

Per  Mo.  Per  Yr. 

Average  expense  for  hired  labor,  cash $30         $330 

Average  expense  for  hired  labor,  board  and  lodg.  $15    45    180$540 

Average  expense  of  Tom's  labor,  cash 10  120 

Average  expense  of  Tom's  labor,  board  and  lodg.  15  25    180  300 

Value  of  Tom's  labor  not  previously  charged  to  —  

Labor,  to  be  entered  at  the  close  of  the  year . .  $240 


With  this  $240  posted  to  the  debit  of  Labor  account,  the 
latter  will  show  the  value  of  services  put  into  the  farm 
enterprises.  That  is  what  the  Labor  account  should  show, 
in  order  to  arrive  at  costs  that  have  a  meaning. 


SPECIAL  ACCOUNTS  AND  ENTRIES         135 

Feed. — When  feed  of  any  kind  is  purchased  for  a  spe- 
cific class  of  livestock,  the  livestock  account  for  which 
it  is  to  be  used  is  debited.  If  it  is  a  feed  that  is  used  by 
several  classes  of  livestock  a  *'feed"  account  is  debited, 
the  balance  of  which  is  transferred  to  Loss  and  Gain  ac- 
count as  a  separate  item. 

In  operating  a  cost  system  the  Feed  account  is  closed 
into  the  several  livestock  accounts  at  the  close  of  the  year, 
based  on  the  relative  amounts  consumed  as  shown  by  the 
feed  records. 

For  example,  in  the  cost  system,  if  the  balance  of  Feed 
account  at  the  close  of  the  year,  after  crediting  it  with 
the  inventory,  but  before  closing,  is  $160,  of  which  $80 
worth  was  consumed  by  swine,  $20  by  poultry,  $30  by  cattle 
and  $30  by  horses,  the  following  entry  would  be  made: 

Swine $80.00 

Poultry 20.00 

Cattle 30.00 

Horses 30.00 

Feed $160.00 

The  inventory  is  brought  down  on  the  debit  side  below 
the  double  lines,  as  in  any  other  account. 

Fertilizer. — Commercial  fertilizer  purchased  is  charged 
to  Fertilizer  account,  the  balance  of  which  is  closed  into 
Loss  and  Gain,  after  considering  inventory,  when  detailed 
costs  are  not  kept. 

Under  the  cost  accounting  method,  the  several  fields  are 
charged  with  the  respective  amounts  of  fertilizer  applied. 
In  such  a  case,  if  all  fertilizer  is  used  before  the  close  of 
the  year,  the  account  should  be  in  balance.  If  it  is  not 
all  used,  the  balance  should  agree  with  the  value  of  the 
fertilizer  on  hand. 

Inventories. — One  of  the  most  important  elements  in  de- 
termining the  resources  or  the  loss  or  gain  of  a  farm  is  the 


1. 


136 


FARM  ACCOUNTING 


inventory.  An  inventory  is  not  the  name  of  an  account  as 
used  in  farm  accounting.  It  affects  a  great  many  accounts, 
however.  Primarily  an  inventory  is  a  list  of  commodities 
in  ane^s  possession  at  a  given  flme,  together  with  the  quan- 
tities and  value  of  each.  As  ordinarily  used  in  connection 
with  accounts,  inventory  refers  only  to  the  total  value  of 
a  given  class  of  property.  For  instance,  in  the  discussion 
of  Crop  accounts,  it  was  stated  that  *'a  Crop  account  is 
debited  with  the  inventory  at  the  beginning  of  the  period. ' ' 
This  means,  for  example,  that  from  the  inventory  sheet 
containing  an  itemized  list  of  all  possessions,  the  total 
value  of  corn  on  hand  is  used  as  a  basis  for  debiting  Com 
account  at  the  beginning  of  the  period. 

Inventory  Entries  in  Accounts. — The  method  of  using 
the  inventory  in  an  account  at  the  beginning  and  close  of 
a  year  is  shown  in  Illustration  25  by  its  application  in  a 
Swine  account. 

ILLUSTRATION  25 
Inventory  Entries  in  an  Account  Showing  a  Gain 

Sivine 


1916 

Mar.    1  Inventory $400 

1917 

Feb.  28  To  Loss  &  Gain   400 


1917 

Mar.  1  Inventory 


$800 


300 


1916 

Nov.  5  Cash $200 

1917 

Jan.  SOCash 300 

Feb.  28  Inventory 300 


$800 


The  entries  in  the  Swine  account  of  Illustration  25  are 
made  as  a  result  of  the  following  transactions  or  transfers 
of  value: 


SPECIAL  ACCOUNTS  AND  ENTRIES 


137 


Mar.  1,  1916.  The  debit  of  $400  indicates  either  a  credit 
to  Capital  account  at  time  of  opening  the  books ;  or  a  credit 
to  Swine  account  on  the  last  day  of  the  preceding  year,  if 
the  account  books  were  kept  at  that  time. 

Nov.  5,  1916.  This  credit  of  $200  indicates  that  swine 
were  sold  for  $200  cash,  the  latter  account  being  debited. 

Jan.  30,  1917.  This  credit  of  $300  resulted  in  a  debit 
to  Cash  for  the  sale  of  swine. 

Feb.  28,  1917.  The  $300  credit  for  the  inventory  was 
made  after  taking  the  trial  balance  at  the  close  of  the 
year,  but  before  preparing  the  Loss  and  Gain  Statement 
or  Statement  of  Resources  and  Liabilities.  It  was  made 
as  part  of  the  process  of  closing  the  ledger.  The  debit 
to  offset  the  credit  is  found  below  the  double  lines  of  the 
same  account.  It  is  dated  Mar.  1,  1917.  It  is  considered 
as  being  made  the  first  instant  of  the  new  year  and  the 
credit  as  being  made  the  last  instant  of  the  old  year.  The 
date  does  not  have  any  material  effect  except  that  it  is 
better  to  have  the  entries  above  the  double  lines  bear  a 
date  within  the  limits  of  the  old  year;  and  those  below 
the  double  lines  bear  a  date  within  the  limits  of  the  new 
year.  When  books  of  original  entry  are  used  this  is  one 
of  that  class  of  entries  that  do  not  have  to  appear  in  a  book 
of  original  entry  first.  The  reason  is  that  it  is  a  debit  and 
a  credit  to  the  same  account. 

The  $400  debit  in  Illustration  25,  under  Feb.  28,  1917, 
is  made  in  order  to  transfer  the  net  gain  to  the  Loss  and 
Gain  account.  This  is  the  last  entry  made  before  ruling 
off  the  account  and  bringing  down  the  inventory.  The  loss 
or  gain  is  found  by  the  same  arithmetical  process  that  is 
used  when  the  inventory  is  not  brought  into  consideration. 
In  this  case  (Illustration  25)  the  sum  of  the  two  sales  plus 
the  inventory  at  the  close  of  the  period  is  $800.  By  sub- 
tracting the  $400  debit  entry  of  Mar.  1,  1916,  it  is  found 
that  the  result  of  dealing  in  swine  is  $400.    This  gain  is 


11 


Il^ 


I 


138 


FARM  ACCOUNTING 


transferred  to  Loss  and  Gain  account  by  debiting  Swine 
account  and  crediting  Loss  and  Gain.  The  credit  entry  in 
Loss  and  Gain  account  is  not  shown  in  Illustration  25. 

Some  question  arises  as  to  why  the  $300  inventory  at  the 
close  of  the  period  is  credited  to  the  Swine  account,  and 
also  debited.  It  might  be  considered  as  a  sale  to  the  next 
fiscal  year.  All  sales  of  swine  are  credited  to  the  account. 
Since  it  is  desired  to  show  the  profit  of  each  year  separate, 
it  is  considered  that  the  swine  on  hand  at  the  close  of 
the  year  are  sold  to  next  year's  operations.  This  sale  to 
the  succeeding  year,  however,  is  not  made  at  selling  price. 
This  explanation  also  justifies  the  debit  to  the  Swine  ac- 
count below  the  double  lines,  with  the  value  of  the  inven- 
tory. It  is  covered  by  the  principle  that  a  mixed  account 
is  debited  with  the  cost  of  the  property  on  hand  at  the  be- 
ginning of  the  fiscal  period.  The  year  in  which  the  swine 
are  sold  will  then  receive  the  profit. 

Natural  Increase  in  Livestock. — It  is  only  through  the 
inventory  entries  that  the  natural  increase  in  livestock  is 
recorded.  It  is  not  practical  to  record  values  for  young 
livestock  born  from  time  to  time  in  the  way  a  merchant 
records  values  for  merchandise  bought.  Such  values  are 
reflected  in  the  books  annually  at  the  time  of  recording  the 
inventory.  Thus  the  young  stock  born  during  a  given 
year  has  its  effect  on  the  Loss  and  Gain  account  and  upon 
the  specific  livestock  account  in  the  inventory  entry  or  in 
the  entry  for  sales.  In  Illustration  25  any  pigs  born  dur- 
ing the  fiscal  year  are  accounted  for  in  one  of  two  ways. 
If  they  are  sold  on  the  market  they  are  included  in  the 
regular  sale  credits.  If  they  are  not  sold  on  the  market 
they  are  sold  to  the  next  year's  operations,  so  to  speak, 
and  are,  therefore,  included  in  the  inventory  entry. 

In  order  to  present  the  inventory  and  loss  and  gain  en- 
tries under  other  conditions,  let  it  be  assumed  that  cholera 
caused  the  death  of  a  considerable  number  of  swine  during 


SPECIAL  ACCOUNTS  AND  ENTRIES         139 

the  year  so  that  instead  of  selling  $500  worth  and  having 
v^300  worth  left  at  the  close  of  the  year,  as  in  Illustration 
25,  the  owner  sold  only  $200  worth  and  had  $100  worth 
at  the  close.  Under  these  conditions  there  would  be  a  loss, 
and  the  account  would  appear  as  in  Illustration  26  after 
closing  it  and  bringing  down  the  inventory.  The  inventory 
entry  is  made  in  the  same  way  whether  the  account  shows 
a  gain  or  a  loss.  When  the  account  shows  a  loss,  it  is  nec- 
essary to  credit  such  account  and  debit  Loss  and  Gain 
account. 

ILLUSTRATION  26 
Inventory  Entries  in  an  Account  Showing  a  Loss 

Swine 


1916 

Mar.    1  Inventory 


$400 


$400 


1916 

Nov.    5  Cash 

1917 

Feb.  28  Inventor}' 

Feb.  28  Loss  &  Gain.. 


$200 

100 
100 


$400 


1917 

Mar.    1  Inventory $100 

If  an  account  does  not  have  any  debit  or  credit  entries 
after  the  inventory  at  the  beginning  of  a  given  year,  and 
if  the  physical  inventory  at  the  close  of  the  year  agrees 
with  the  balance  of  the  account,  no  entry  is  necessary  for 
the  inventory.  For  example,  if  Horses  account  has  a  bal- 
ance on  Mar.  1,  1916,  of  $1200  and  at  time  of  closing  on 
Feb.  28,  1917,  there  are  no  other  entries  in  the  account, 
and  the  inventory  of  horses  taken  at  that  date  is  $1200, 
the  account  is  left  exactly  as  it  was.  It  shows  the  true 
condition  of  affairs  and  there  is  no  loss  or  gain  to  transfer. 

Taking  and  Recording  the  Inventory.— T/?^  physical  in- 


140 


FARM  ACCOUNTING 


ventory  (the  process  of  counting  and  valuing)  is  taken  and 
recorded  on  sheets  of  paper  or  in  a  permanent  hook  at  the 
close  of  the  fiscal  year.  This  is  Feb.  28,  in  the  middle  west, 
Mar.  31  in  some  other  localities,  and  Dec.  31  in  some  spe- 
cial types  of  agriculture,  especially  orchards  and  nurseries. 
However,  under  the  new  Income  Tax  regulations  it  is  more 
convenient  to  have  the  fiscal  year  coincide  with  the  calen- 
dar year. 

It  is  a  very  good  plan  to  record  inventories  in  compara- 
tive form,  having  the  names  of  the  items  written  on  the 
left  side  of  the  page,  reserving  the  space  to  the  right  for 
several  money  columns,  one  for  each  year.  In  this  way 
one  has  the  figures  for  about  five  years  at  a  time  to  com- 
pare, which  comparison  serves  as  quite  a  valuable  source 
of  information. 

Another  good  feature  of  the  inventory  record  in  perma- 
nent or  comparative  form  is  that  it  presents  a  good  excuse 
for  '* calling  in''  tools  that  have  been  loaned.  If  one  sees 
listed  in  1916,  among  the  tools,  *'l  post  hole  digger,''  but 
sees  a  blank  space  in  the  column  of  the  comparative  inven- 
tory for  1917,  indicating  no  such  tool  on  hand,  it  often 
serves  to  refresh  the  memory,  and  results  in  a  trip  or 
phone  call  to  the  neighbor's  farm  to  have  the  missing  article 
returned  ''so  as  to  straighten  out  the  records  at  the  close 
of  the  year. "  It  serves  much  the  same  purpose  as  the  mer- 
chant's appeal  to  his  customers  to  **  please  remit  so  we  can 
close  our  books  for  the  year.*'  If  the  customer  does  not 
remit  the  merchant  closes  his  books  anyway.  If  the  post 
hole  digger  is  not  returned.  It  is  counted  in  anyway.  In 
either  case,  the  pretension  of  an  excuse  often  does  much 
good  and  usually  does  no  harm. 

A  typical  inventory  in  comparative  form  is  presented  in 
Illustration  27.  The  relation  between  the  figures  in  this 
comparative  inventory  and  the  ledger  accounts  is  the  essen- 
tial point  in  the  record.    The  physical  inventory  is  taken 


y 


SPECIAL  ACCOUNTS  AND  ENTRIES         141 

in  order  to  derive  figures  to  use  in  the  accounts.  For  this 
purpose  the  inventory  sheet  is  so  arranged  that  the  figures 
to  be  used  in  the  accounts  stand  out  very  prominently. 

In  Illustration  27  the  amounts  recorded  in  the  **  Valua- 
tion for  Accounts"  column  each  year  are  the  ones  that  af- 
fect the  accounts.  The  names  of  the  accounts  affected  are  also 
brought  out  quite  prominently,  except  that  the  inventory  of 
Miscellaneous  Supplies  affects  General  Expense  account, 
Equipment  Expense  or  Dairy  Equipment  Expense,  or  other 
account  charged  at  the  time  the  supplies  were  acquired. 

In  the  case  at  hand,  the  valuation  at. Mar.  1,  1915,  is 
considered  as  having  been  made  for  the  purpose  of  opening 
a  set  of  books  at  that  time.  Using  the  figures  at  that  date 
as  a  basis,  then,  along  with  figures  for  cash,  buildings,  land, 
notes,  and  accounts  receivable  and  payable,  the  opening 
entry  would  bear  the  following  form,  using  figures  shown 
in  the  Mar.  1,  1915,  inventory  of  Illustration  27 : 

Cash • XXX 

Notes  Receivable xxx 

Cattle $1,446.00 

Swine 565.00 

Horses. 1,760.00 

Poultry 134.50 

Sheep 100.00 

Equipment 576.00 

Equipment  (Dairy) 120.00 

Com 450.00 

Oats 200.00 

Wheat 56.00 

Potatoes 36.00 

Hay,  timothy 100.00 

Silage 120.00 

General  Expense  (Supplies  on 

hand) 11.50 

Notes  Payable xxx 

Proprietor's  Capital. . .  xxx 


142 


FARM  ACCOUNTING 


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SPECIAL  ACCOUNTS  AND  ENTRIES 


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SPECIAL  ACCOUNTS  AND  ENTRIES  145 


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146 


FARM  ACCOUNTING 


•:  5 


It  is  to  he  observed  from  the  pro  forma  entry  above  that 
only  those  amounts  are  extended  in  ihe  *' valuation  for  ac- 
counts'' column  of  the  inventory  sheet  that  are  to  he  trans- 
ferred to  accounts  in  the  ledger.     For  example,  the  title 
*' calves"  appears  in  the  inventory,  but  their  value  is  not 
shown  as  a  separate  item  in  the  column  called  "valuation 
for  accounts"  because  there  is  no  ledger  account  with 
calves.     The  transactions  with  calves  are  recorded  in  the 
Cattle  account.     In  the  inventory  record,  therefore    the 
calves  are  included  with  the  total  cattle  in  the  ''valuation 
for  accounts"  column.    For  a  similar  reason  each  of  the 
farm  product  items  is  extended  into  the  valuation  column. 
The  inventories  of  Equipment  and  Dairy  Equipment  are 
shown  separately,  but  both  of  the  totals  are  carried  to  the 
Equipment  account.    Showing  them  separate  in  the  inven- 
tory record  enables  one  to  calculate  depreciation  on  the 
two  classes  of  Equipment  separately,  if  occasion  demands. 
The  Equipment  and  Dairy  Equipment  items  are  detailed 
in  the  inventory  sheet  only  for  the  purpose  of  listing  the 
greai  variety  of  items  for  future  reference,  and  to  show 
the  quantities.     The  value  of  the  equipment  items  is  not 
shown,  either  in  detail  or  in  total,  except  at  the  time  of 
opening  the  account  hooks.    The  inventory  value  of  Equip- 
ment at  the  close  of  a  year  is  obtained  hy  deducting  a  given 
percentage  of  depreciation,  such  depreciation  and  inven- 
tory values  heing  recorded  in  the  account  urithout  heing 
shown  first  on  the  inventory  record.    This  is  discussed  un- 
der "Depreciation,"  below. 

The  inventory  sheet  is  not  totaled,  as  the  totals  are  not 
used  for  any  purpose.  After  depreciating  the  equipment 
and  entering  the  several  items  of  the  valuation  column  in 
their  respective  ledger  accounts,  closing  and  bringing  down 
the  balances,  the  total  value  of  possessions  can  be  found 
easily  from  the  trial  balance  after  closing  or  from  the 
Statement  of  Resources  and  Liabilities. 


SPECIAL  ACCOUNTS  AND  ENTRIES  147 

The  amounts  in  the  "valuation  for  accounts"  column 
under  date  of  Feb.  29,  1916  (Illustration  27)  are  consid- 
ered  as  the  values  at  the  close  of  the  first  fiscal  year  and 
the  beginning  of  the  second.  Accordingly,  their  use  is  that 
previously  described  herein  and  presented  in  Illustrations 
25  and  26.  For  example,  under  date  of  Feb.  29,  1916, 
Cattle  account  would  be  credited  with  $1585  after  taking 
the  preliminary  trial  balance.  The  debit  would  be  re- 
corded in  Cattle  account  also,  under  the  double  lines  after 
closing. 

Livestock  Inventory  in  Accounts.— Illustration  28 
shows  accounts  affected  by  inventory  items.  It  is  pre- 
sented for  the  purpose  of  showing  more  clearly  the  relation 
existing  between  the  inventory  record  and  the  ledger  ac- 
counts. 

The  Cattle  account  is  selected  as  a  fair  representative  of 
the  principles  governing  the  several  livestock  accounts. 
The  inventory  of  $1446  on  the  debit  side  of  the  account 
is  posted  from  the  opening  journal  entry  on  March  1,  1915, 
as  given  on  page  141.  The  figure  was  taken  originally  from 
the  "valuation  for  accounts"  column  of  the  inventory  rec- 
ord, Illustration  27,  being  the  total  value  of  cattle.  The 
inventory  of  $1585  on  the  credit  side  of  Cattle  account  is 
obtained  directly  from  the  same  page  of  the  inventory  rec- 
ord, but  from  the  valuation  column  of  Feb.  29,  1916,  which 
is  one  year  later.  The  entries  of  May  20  and  Nov.  1  are 
assumed  merely  for  illustrative  purposes. 

Crop  and  Field  Inventory  in  Accounts.— The  Corn  ac- 
count is  selected  as  a  representative  type  of  product  ac- 
counts in  Illustration  28.  It  is  presented  with  the  inven- 
tory figures  as  shown  in  the  inventory  record  on  page  145 
being  $450  on  March  1,  1915,  and  $425  at  the  close  of  the 
fiscal  year  Feb.  29,  1916.  The  $450  at  the  beginning  ap- 
pears in  the  ledger  account  as  a  posting  from  the  opening 
entry  as  given  on  page  141.     Ordinarily,  however,  it  would 


148  FARM  ACCOUNTING 

ILLUSTRATION  28 

Ledger  Accounts  and  Their  Relations  to  the  Inventory 

Record 

Cattle 


n 


1915 

Mar.    1  Capital  Invest. 

per  Inventory 

Record $1,446.00 

May  20  Veterinary  ...      25.00 

1916 

Feb.  29  Net    Gain    to 

LossandGain 

a/c 614.00 


$2,085.00 


1915 

Nov.    1  Cash  sale $500.00 

1916 

Feb.  29  Inventory  per 

Inventory 

Record 1,585.00 


$2,085.00 


\\ 


;  \ 

i 


1916 

Feb.  29  Invty.  brought 

down $1,585.00 


Com 


1915 

Mar.    1  Capital  Invest. 

per  Inventory 

Record $450.00 

1916 

Feb.  29  Net    Gam    to 

LossandGain 

a/c 481.00 


1915 

Dec.  16  Cash  sale $506 .  00 

1916 

Feb.  29  Inventory  per 
Inventory 
Record....     425.00 


$931.00 


1916 

Feb.  29  Invty.  brought 

down $425.00 


$931.00 


l| 


SPECIAL  ACCOUNTS  AND  ENTRIES  14p 


General  Expense 


1915 

Mar.  1  Capital  Invest, 
per  Inventory 
Record  (ce- 
ment and 
nails) $11.50 

1916 

Feb.  29  Sundries  from 

Cash  journal 

column 160.00 


1916 

Feb.  29  Inventory  per 
Invty.  Rec- 
ord (nails).. . 

Feb.  29  Bal.  to  Loss  & 
Gain  a/c 


$2.40 


169.10 


$171.50 


1916 

Feb.  29  Invty.  brought 
down  (nails) . 


$2.40 


$171.50 


appear  as  an  item  carried  down  below  the  double  lines  from 
the  preceding  year. 

Miscellaneous    Supplies    Inventory    in    Accounts. In 

showing  the  relation  between  miscellaneous  supplies  in  the 
inventory  record  and  in  the  accounts,  the  General  Expense 
account  is  used  in  Illustration  28.  The  two  classes  of  sup- 
plies specifically  designated  in  the  inventory  record  Illus- 
tration 27  are  cement  and  nails.  At  the  time  these  com- 
modities are  purchased  they  are  charged  to  General  Ex- 
pense. When  purchased  in  large  quantities,  they  are  not 
all  used  in  the  year  in  which  they  were  purchased.  In 
order  properly  to  show  in  the  General  Expense  account 
what  supplies  are  used  in  a  given  year,  an  inventory  is 
taken  of  the  supplies  on  hand  at  the  close  of  the  year. 
These  supplies  are  then  credited  to  the  General  Expense 
account  before  closing,  and  debited  below  the  double  lines 


150 


FARM  ACCOUNTING 


M 


ii 


to  General  Expense  account  after  closing,  thus  effecting  a 
**sale'*  of  the  commodities  to  the  succeeding  year's  busi- 
ness. Such  an  entry  decreases  the  General  Expense  for 
the  year  below  what  it  would  be  if  the  inventory  of  sup- 
plies as  cement,  nails  .'  nd  so  on  were  not  considered.  It 
increases  the  expense  of  the  succeeding  year.  In  other 
words,  the  expense  of  the  year  is  increased  in  which  the 
cement  and  nails  arc  used,  regardless  of  when  they  are 
purchased. 

Considering  the  General  Expense  account  of  Illustration 
28  with  the  inventory  record,  it  is  seen  that  the  $11.50 
debit  in  the  account  is  the  same  as  the  total  miscellaneous 
supplies  on  March  1,  1915,  in  the  valuation  column  of  the 
inventory  record.  Also,  the  $2.40  credit  in  the  account  is 
the  same  as  the  total  of  miscellaneous  supplies  Feb.  29, 
1916. 

Although  General  Expense  account  has  been  used  in 
illustrating  the  relation  between  ledger  accounts  and  the 
inventory  of  miscellaneous  supplies  it  is  not  the  only  ac- 
count that  might  be  affected  by  an  inventory  of  miscel- 
laneous supplies.  Any  given  inventory  of  sundry  articles 
affects  the  account  that  was  debited  when  the  articles  were 
purchased.  For  example,  when  axle  grease  is  bought,  it 
is  charged  to  Equipment  Expense  account.  If  only  one 
or  two  boxes  are  bought  at  a  time,  they  need  not  be  con- 
sidered in  the  inventory.  However,  if  a  larg'e  quantity 
is  bought  a  short  time  before  the  close  of  the  fiscal  year, 
it  should  be  inventoried  as  one  of  the  miscellaneous  sup- 
plies. In  recording  the  inventory  for  such  axle  grease, 
the  entry  both  credit  and  debit  is  made  in  the  Equipment 
Expense  account,  in  a  way  similar  to  that  used  in  record- 
ing nails  in  General  Expense  account  of  Illustration  28. 

Cost  price  is  taken  as  a  basis  for  valuing  the  products 
and  miscellaneous  supplies  from  year  to  year.  However, 
when  one  does  not  operate  under  a  cost  system,  the  cost 


SPECIAL  ACCOUNTS  AND  ENTRIES 


151 


.!  II 


price  being  difficult  to  determine,  it  is  necessary  to  esti- 
mate a  cost  price  for  the  products.  This  is  sometimes 
easily  done  by  taking  a  percentage  of  market  price — say 
5%  or  10%  off.  Such  an  inventory  valuation  is  unsatisfac- 
tory as  a  rule.  Livestock  is  inventoried  at  a  fair  value 
on  the  farm,  always  less  than  the  selling  price,  in  order 
to  avoid  showing  fictitious  profits.  The  same  average  unit 
value  for  each  class  of  livestock  should  be  maintained  from 
year  to  year,  as  far  as  possible. 

DeyreciaXion.— Depreciation  is  a  decrease  in  the  value 
of  property.  The  term  is  used  on  a  farm  in  connection 
with  buildings  and  equipment.  Other  possessions  are  not 
considered  as  depreciating  to  the  extent  that  special  ac- 
counting recognition  must  be  taken  of  them.  Hay  may 
depreciate  in  a  stack  or  corn  in  a  crib  under  certain  con- 
ditions, but  such  depreciation  is  taken  care  of  in  the  an- 
nual inventory.  Taking  an  inventory,  then,  is  one  way  of 
providing  for  depreciation.  It  is  known  as  the  ^^  Revalua- 
tion'^ method  of  calculating  the  amount  of  depreciation. 
There  are  two  main  points  to  consider  in  depreciation,  (a) 
the  calculation  of  the  amount  of  wear  and  tear  expressed 
in  dollars  and  cents  and  (b)  the  recording  of  the  amount 
so  calculated  in  the  hooks. 

In  the  case  of  buildings  and  equipment  it  is  more  diffi- 
cult and  unsatisfactory  to  calculate  depreciation  accord- 
ing to  the  revaluation  method,  so  the  percentage  method 
is  used.  There  are  several  ways  of  calculating  deprecia- 
tion by  percentage.  The  most  common  is  called  the 
** straight  line''  method,  in  which  the  anticipated  number 
of  years  of  life  of  the  asset  is  divided  into  the  original  cost 
in  order  to  find  the  depreciation  for  each  year.  If  a  ma- 
chine costs  $100  and  it  is  estimated  to  last  10  years,  the 
depreciation  for  each  year  is  calculated  as  1/10  of  $100. 
The  1/10  is  more  often  reduced  to  a  percentage  basis,  mak- 
ing it  10%  of  $100. 


I 


152 


FARM  ACCOUNTING 


I 


A  method  similar  to  the  straight  line,  which  is  very 
practical  and  sufficiently  accurate  for  farm  purposes,  is  an 
unscientific  modification  of  the  ** diminishing  value" 
method.  As  practiced  on  the  farm,  it  consists  in  calculat- 
ing a  certain  percentage  of  the  book  value  at  the  close  of 
each  year.  The  percentage  is  based  on  the  number  of  years 
of  life  of  the  machine  or  building,  e.g.,  10%  for  a  machine 
or  building  expected  to  last  10  or  15  years.  This  method 
never  reduces  the  book  value  to  zero.  That  is  one  element 
in  its  favor  as  far  as  use  on  the  farm  is  concerned. 

Recording  Depreciation  in  Accounts. — Under  the  '*di- 
minishing  value"  method  as  practiced  on  the  farm,  if 
Equipment  account  has  a  balance  of  $1000  at  the  begin- 
ning of  the  year  and  10%  is  considered  as  a  reasonable 
rate  of  depreciation,  the  entry  at  the  close  of  the  year  is 
a  debit  to  Equipment  Expense  and  a  credit  to  Equipment 
of  $100.  This  would  leave  a  balance  of  $900  in  the  Equip- 
ment account  at  the  beginning  of  the  second  year.  At  the 
end  of  the  second  year,  the  entry  would  be  for  $90  (10% 
of  $900,  the  book  value  at  the  beginning  of  the  year) .  At 
the  end  of  the  third  year,  it  would  be  $81  (10%  of  $810). 
If  at  the  beginning  of  the  third  year,  $50  worth  of  new 
machinery  is  purchased,  the  depreciation  calculated  at  the 
close  of  the  year  is  10%  of  $860. 

The  effect  of  the  entries  for  depreciation  as  stated  above 
is  to  decrease  the  profits  of  each  year  and  decrease  the 
value  of  the  resource  depreciated.  The  profits  are  de- 
creased because  the  annual  charge  to  Equipment  Expense 
account  represents  the  wear  and  tear  on  the  equipment  for 
the  year. 

Diminishing  Value  and  Straight  Line  Depreciation. — 
The  rate  of  10%  as  used  in  the  examples  above  is  a  con- 
servative and  practical  rate  to  use  in  calculating  deprecia- 
tion on  farm  equipment,  under  the  diminishing  value 
method.    A  given  rate  used  under  this  method  results  in 


SPECIAL  ACCOUNTS  AND  ENTRIES 


158 


u 


a  less  annual  amount  of  depreciation  than  the  same  rate 
under  the  straight  line  method.  Illustration  29  shows  a 
more  or  less  hypothetical  case  in  which  the  two  methods 
are  compared.  In  this  Illustration  it  is  presumed  that 
some  equipment  is  purchased  for  $1000.  A  rate  of  10% 
is  used  under  the  straight  line  method  and  also  under  the 
diminishing  value  method.  It  is  seen  from  the  Illustra- 
tion that  under  the  straight  line  method  the  value  of  the 
equipment  at  the  end  of  ten  years  is  zero,  while  under 
the  diminishing  value  method  it  is  $348.68.  By  carrying 
the  calculations  on  to  the  end  of  the  twentieth  year  under 
the  diminishing  value  method  it  is  seen  that  the  value  of 
the  original  equipment  at  that  time  is  $121.57. 

Illustration  29  also  shows  that  the  amounts  charged  to 
Equipment  Expense  account  aggregate  $1000  in  ten  years 
under  the  straight  line  method  at  10%  while  they  aggre- 
gate only  $878.43  in  twenty  years  at  the  same  rate  per  cent, 
under  the  diminishing  value  method. 

The  principal  point  to  remember  in  connection  with 
Illustration  29,  and  the  comparison  of  results  under  the 
two  methods  of  calculating  depreciation,  is  that  a  given 
rate  of  depreciation  does  not  always  mean  the  same  thing. 
Some  might  say,  for  example,  that  10%  is  too  high  a  rate 
for  all  equipment,  having  in  mind  that  it  means  charging 
off  all  of  the  value  of  the  resource  in  ten  years.  Others 
might  say  that  10%  is  too  low  a  rate,  having  in  mind  that 
even  within  a  period  of  twenty  years  the  resource  is  not 
entirely  charged  off. 

In  the  case  of  farm  equipment  10%  under  the  diminish- 
ing value  method  represents  the  conditions  hetter  and  sim^ 
pier  than  with  any  other  method  or  rate.  The  rate  is  ea^ 
to  use  in  calculation,  and  the  results  interpret  very  closely 
the  actual  wear  and  tear  on  equipment  in  general.  Depre- 
ciation is  greater  in  the  early  years  and  less  in  the  later 


u 


154  FARM  ACCOUNTING 


ILLUSTRATION  29 

Value  of  $1,000  Worth  of  Equipment  at  Close  of  Each  Year 

AND  Amount  Charged  Off  W  hen  Depreciated  at  10%  Under 

THE  Straight  Line  and  Diminishing  Value  Methods 


Straight  Line  Deprecia- 

Diminishing Value  De- 

tion at  10% 

preciation  at  10% 

At  Close  of 

Year  No. 

Value  at 

Depreciated 

Value  at 

Depreciated 

Close  of 

During 

Close  of 

During 

Year 

Year 

Year 

Year 

1 

$900.00 

$100.00 

$900.00 

$100.00 

2 

800.00 

100.00 

810.00 

90.00 

3 

700.00 

100.00 

729.00 

81.00 

4 

600.00 

100.00 

656.10 

72.90 

5 

500.00 

100.00 

590.49 

65.61 

6 

400.00 

100.00 

531.44 

59.05 

7 

300.00 

100.00 

478.30 

53.14 

8 

200.00 

100.00 

430.47 

47.83 

9 

100.00 

100.00 

387.42 

43.05 

10 

Zero 

100.00 

348.68 

38.74 

11 

313.81 

34.87 

12 

282.43 

31.38 

13 

254.19 

28.24 

14 

228.77 

25.42 

15 

205.89 

22.88 

16 

185.30 

20.59 

17 

166.77 

18.53 

18 

- 

150.09 

16.68 

19 

135.08 

15.01 

20 

121.57 

13.51 

Total  Deprecia 

tion 

..$1,000.00 

$878.43 

SPECIAL  ACCOUNTS  AND  ENTRIES  155 

years  of  a  machine's  life.^  Under  this  plan,  it  is  considered 
that  new  equipment  is  purchased  from  time  to  time  before 
all  of  the  old  equipment  becomes  absolutely  valueless.  This 
fact  tends  to  equalize  the  depreciation  from  year  to  year, 
while  allowing  for  a  conservative  life  of  the  various  units 
of  equipment. 

Building  Depreciation.— The  general  principles  govern- 
ing the  calculation  of  depreciation  on  equipment  apply  in 
the  case  of  depreciation  on  buildings.  A  rate  of  5%  on  the 
diminishing  value  is  conservative  for  the  average  farm 
buildings.  The  annual  entry  for  building  depreciation  is  a 
debittoBuildingExpenseaccount  and  a  credit  to  Buildings. 
.  General  Theory  of  Depreciation.— Other  methods  of  cal- 
culating depreciation  are  not  considered  practical  enough 
for  farm  use,  hence  are  not  discussed  here. 

An  account  called  Reserve  for  Depreciation  is  used  in 
commercial  accounting  to  which  is  credited  the  deprecia- 
tion instead  of  crediting  (decreasing)  the  property  account 
direct.  The  Statement  of  Resources  and  Liabilities  is  then 
prepared  in  such  a  way  as  to  show  the  resulting  value  of 
the  properties  exactly  as  is  shown  in  the  ledger  accounts 
under  the  method  presented  herein. 

Likewise,  it  is  not  considered  necessary  to  discuss  why 
depreciation  is  an  element  of  expense.  Not  many  years 
ago  accountants  had  great  difficulty  in  impressing  upon 
judges,  lawyers  and  business  men  in  general  the  fact  that 
depreciation  was  an  expense.  At  present,  however,  the 
business  world  is  generally  coming  to  recognize  the  fact 
that  a  deterioration  of  capital  requires  an  entry  on  the 
books  in  order  to  show  the  true  conditions.  It  has  been 
pointed  out  in  earlier  chapters  herein,  that  a  decrease  in 
capital  requires  a  debit  to  Loss  and  Gain  or  some  other 
nominal  account,  which  is  really  a  subdivision  of  the  Cap- 
ital account  itself. 

*  Bulletin  145  Minnesota  Agricultural  Experiment  Station,  pp.  24-25. 


h 


156 


FARM  ACCOUNTING 


Closing  Journal  Entry. — This  does  not  bring  up  a  new 
subject  but  merely  presents  an  old  principle  in  a  new  way. 
It  deals  with  the  process  known  as  closing  the  ledger.  This 
subject  has  been  presented  under  the  title,  **  Transfer  or 
Closing  Entries*'  in  Chapter  III.  That  discussion  consid- 
ered the  closing  without  the  process  of  posting,  the  ledger 
being  the  only  book  used. 

When  books  of  original  entry  are  used  they  must  be 
used  for  all  entries  except  those  involving  only  one  ac- 
count, as  in  bringing  down  balances  or  inventories.    Clos- 

ILLUSTRATION  30 

Closing  Journal  Entries 
given  accounts  as  follows,  to  prepare  closing  journal  entries 

Labor 


1917 

Jan.  31 $30.00 

Feb.  28 30.00 


Sioine 


1916 
Mar  1 


$500.00 


1917 

Jan.  20  Cash $250.00 

Feb.  28 Inventory...    400.00 


Com 


1917 

Jan.  31  Cash 


$100.00 


General  Expense 


1917 

Jan.  31 $100.00 

Feb.  28. 80.00 


SPECIAL  ACCOUNTS  AND  ENTRIES  157 

The  following  closing  journal  entries  are  prepared : 

Loss  and  Gain $60 .  00 

Labor S60.00 

Swine 150.00 

Loss  and  Gain 150.00 

Com 100.00 

Loss  and  Gain 100.00 

Loss  and  Gain 180.00 

General  Expense ....  180 .  00 

Loss  and  Gain 10 .00 

Proprietor's  Capital. .  10.00 

ing  entries  involve  the  nominal  accounts,  some  mixed  ac- 
counts, and  the  Capital  account  at  the  same  time.  Accord- 
ingly they  are  made  in  the  journal  rather  than  in  the  cash 
book.  If  the  cash  journal  is  used  they  are  made  in  the 
** sundry''  columns,  each  item  being  posted  separately. 

The  entries  are  made  at  the  same  time,  under  the  same 
conditions  and  with  the  same  debits  and  credits  expressed 
as  they  are  when  made  into  the  ledger  accounts  direct. 
When  made  in  the  journal  they  must  be  posted  to  the 
ledger  accounts  involved.  The  ledger  accounts  affected  are 
then  dealt  with  as  previously  discussed. 

In  commercial  accounting  it  is  considered  better  to  make 
the  closing  entries  after  preparing  the  financial  statements. 
In  farm  accounting  it  is  simpler  to  make  the  closing  en- 
tries and  close  the  ledger  before  preparing  the  statements. 
This  was  brought  out  in  the  discussion  of  the  trial  balance 
after  closing,  in  Chapter  IV. 

A  typical  closing  entry  is  presented  in  Illustration  30. 
The  singular  word  ** entry*'  is  used  although  the  process 
under  this  method  is  a  series  of  entries.  The  series  of 
entries  is  better  than  one  combined  entry.  It  avoids  anal- 
ysis of  the  Loss  and  Gain  account  later. 


I 


'Ml. 


1 


158 


FARM  ACCOUNTING 


The  last  entry  above  is  made  after  posting  the  other  en- 
tries and  finding  the  balance  remaining  in  Loss  and  Gain 
account  to  be  closed  into  Capital.  The  amount  can  be  cal- 
culated on  a  piece  of  scratch  paper,  however,  and  thus 
permit  all  the  closing  entries  to  be  made  at  one  time. 

After  posting  the  closing  journal  entries,  the  several 
nominal  accounts  should  be  ruled  off  and  the  balance  of 
Capital  account  brought  down  below  the  double  lines. 

ILLUSTRATIVE  PROBLEMS 

1.  (a)  Make  entries  in  simple  journal  and  cash  book  for  the 
year's  transactions. 

(b)  Post  to  the  ledger  leaving  enough  space  for  entries  of 
problem  2  below,  and  take  a  trial  balance. 

(c)  Make  and  post  the  necessary  journal  entries,  closing  the 
proper  accounts  into  Loss  and  Gain  account  and  the  latter  into 
Capital  account. 

(d)  Rule  off  the  accounts,  and  bring  down  the  necessary  bal- 
ances. 

(e)  Take  a  trial  balance  after  closing.  The  inventories  at 
the  beginning  and  close  of  the  period  are  to  be  recorded  in  the 
comparative  inventory  record. 

Feb.  1,  1916.  W.  L.  Miller  begins  keeping  accounts  on  the 
farm,  owing  $5000  on  a  mortgage  note  and  investing  Cash 
$2500,  land  valued  at  $12,000,  buildings  worth  $5000,  and  other 
property  as  detailed  below.  Cattle:  4  milch  cows  at  $60  each; 
2  calves  at  $25  each;  2  two-year-olds  at  $35  each.  Swine:  1 
boar  $45;  15  sows  at  $35  each;  30  pigs  at  $12  each.  Horses: 
6  work  and  driving,  at  $150  each ;  2  colts  at  $90  each.  Poultry : 
100  chickens,  all  kinds  averaging  $0.90  each;  4  turkeys  averag- 
ing $1.60  each. 

Equipment:  2  farm  wagons  complete  with  box  and  side- 
boards at  $76.35;  1  handy  wagon  and  rack  at  $37.50;  1  spring 
wagon,  $60.95;  1  light  buggy  with  pole  and  shafts,  $65;  1  four"- 
cylinder  automobile,  $250;  5  sets  double  work  harness,  at  $31.25; 
1  set  double  driving  harness,  $25;  1  set  single  driving  harness^ 


SPECIAL  ACCOUNTS  AND  ENTRIES 


159 


$21.75;  1  grain  binder,  $90;  2  gang  plows  at  $59;  1  walking 
plow,  $10.90;  1  com  planter,  $28;  1  spike  tooth  harrow,  $18.25; 
1  disk-harrow,  $23;  1  two-horse  4-shovel  cultivator,  $12.50;  1 
two-horse  6-shovel  cultivator,  $15;  1  roller,  $28.80;  1  grain  drill, 
$78;  1  lime  spreader,  $35;  1  six-foot  mower,  $43.50;  1  hay  rake, 
$7;  1  hay  tedder,  $41;  1  manure  spreader,  $40;  1  hay  loader, 
$55.65;  1  corn  sheller,  $13.50;  1  platform  scale,  $7.70;  1  clip- 
ping machine,  $9;  2  wheelbarrows  at  $3.60;  2  large  hand 
rakes  at  $0.66;  3  scoop  shovels  at  $1.10;  3  bushel  baskets  at 
$0.25;  2  hay  racks  at  $10;  1  half-bushel  measure,  $0.53;  1  peck 
measure,  $0.40;  1  scythe,  $0.85;  1  hay  knife,  $1;  1  hay  fork, 
$0.65;  1  hay  carrier  outfit,  $12;  4  husking  mittens  at  $0.75;  2 
com  knives  at  $0.35;  25  grain  sacks  at  $0.30;  1  poultry  drink- 
ing fountain,  $0.65;  8  chicken  coops  at  $1.50;  1  pair  sheep 
shears,  0.90;  5  horse  blankets  at  $3.50;  3  horse  brushes  at  $0.55; 
3  currycombs  at  $0.15;  8  fly  nets  at  $1.20;  12  halters  at  $1.15; 
1  saddle,  $8.45;  1  wagon  jack,  $1.25;  1  lap  robe,  $5;  1  grind- 
stone, $4.50 ;  1  post  hole  digger,  $1.50 ;  1  tile  spade,  $1.15 ;  1  long 
handle  shovel,  $1.10;  1  step  ladder,  $1.75;  1  thirty-two  foot  ex- 
tension ladder,  $4.20;  1  jack  screw,  $2.25;  3  lanterns  at  $0.95; 
1  feed  grinder,  $7.25;  2  axes  at  $1.30;  1  hatchet,  $0.85;  1 
wooden  mallet,  $0.30;  carpenter,  blacksmith  and  mason's  tools 
as  listed  on  door  in  tool  shed,  $75. 

Dairy  Equipment:  1  cream  separator,  $30;  5  milk  cans  at 
$1,75;  5  milk  pails  at  $0.60;  1  churn,  $5;  1  milk  strainer,  $0.65; 
1  thermometer,  $0.30;  2  calf  muzzles  at  $0.25;  1  dehorning 
clipper,  $5.75. 

Products:  400  bushels  of  com  at  $1.30;  320  bushels  of  oats  at 
$0.50;  80  bushels  barley  at  $1;  20  tons  timothy  at  $12;  25  tons 
silage  at  $4;  15  tons  straw  at  $4;  6  cwt.  raillfeed  at  $1.30. 

Miscellaneous  Supplies:  3  reels  barbed  wire  for  repairs  to 
fences  (charge  General  Expense)  at  $4.50;  1  keg  staples,  $5; 
1  keg  shingle  nails,  $5.50;  one-half  barrel  machine  oil,  $6.50 
(charge  Equipment   Expense). 

Household:  Furnishings,  including  chairs,  beds,  tables,  stoves, 
carpets,  pictures,  books,  clothing  and  kitchen  utensils  valued  at 
$900.  (These  need  not  be  itemized  in  detail  in  the  inventory 
record.) 


i6o 


FARM  ACCOUNTING 


Feb.  7.  He  buys  stock  feed  for  $40  cash  and  poultry  feed 
for  $5  cash. 

Feb.  8.  Buys  five  horses  from  A.  Allen  for  $1700,  paying 
$700  in  cash  and  the  balance  with  a  six  months'  note  bearing 
G%  interest. 

Feb.  9.  Buys  two  sets  of  harness  for  $50  cash. 

Mar.  1.  Pays  $150  interest  on  mortgage  note  for  six  months 
ended  today  (Dr.  General  Expense). 

Mar.  1.  Buys  17  cows  from  L.  List  $750,  for  which  he  gives  his 
note  for  $500,  the  balance  to  be  settled  later. 

Mar.  10.  Buys  40  sheep  from  M.  Mann  on  account,  $175. 

Apr.  1.  Pays  $32  cash  for  a  new  hay  rake^  to  replace  one 
worn  out. 

Apr.  30.  Pays  L.  J.  Johnson  his  wages  for  the  month,  $45  cash. 

May  31.  Sells  eggs  for  cash,  $10. 

May  31.  Sells  to  Cooperative  Creamery  on  account  540  lbs. 
butter  fat  at  $0.35.     (Represents  the  sales  of  the  month.) 

June  30.  Sells  to  the  Cooperative  Creamery  on  account  470 
lbs.  butter  fat  at  $0.35.     Sells  eggs  for  cash  $8. 

July  18.  Paid  for  re^shingling  horse  barn,  $40. 

Aug.  31.  Pays  $55  for  sundry  labor. 

Sept.  1.  Pays  $150  interest  on  mortgage  for  six  months  end- 
ing today. 

Sept.  6.  Buys  stock  feed  for  $60  cash. 

Oct.  31.  Sells  500  lbs.  butter  fat  at  $0.35  cash. 

Nov.  20.  Sells  20  sheep  for  $110  cash. 

Nov.  21.  Pays  M.  Mann  on  account  $125. 

Dec.  1.  Sells  the  remaining  sheep  and  lambs  for  $145  cash. 

Dec.  8.  Pays  $1050  to  A.  Allen  to  redeem  note  of  Feb.  8th, 
which  had  been  extended;  and  to  pay  interest  on  same. 

Dec.  9.  Sells  swine   (3800  lbs.)   at  $13  per  cwt.  for  cash. 

Dec.  10.  Sells  to  Cooperative  Creamery  400  lbs.  butter  fat  at 
$0.35,  on  account. 

Dec.  31.  Receives  cash  from  the  Cooperative  Creamery  $300 
to  apply  on  account. 

*  Since  depreciation  takes  care  of  the  hay  rake  worn  out,  the  new 
one  is  to  be  charged  to  Equipment  account. 


SPECIAL  ACCOUNTS  AND  ENTRIES 


161 


Jan.  16,  1917.  Pays  fire  insurance  premium  on  one-year  policy, 
$15. 

Jan.  31.  Pays  taxes  for  the  year,  $130. 

Jan.  31.  Pays  $6.50  for  barrel  of  gasoline  for  automobile. 

Jan.  31.  Pays  $24  for  new  tile  ^  to  replace  similar  ones  in  the 
field. 

Jan.  31.  The  proprietor  values  his  labor  for  year  at  $600. 

Jan.  31.  The  inventories  of  properties  requiring  an  inventory 
at  the  close  of  the  year  are  indicated  by  the  following  facts  and 
figures:  Buildings  depreciated  5%  during  the  year  (diminish- 
ing value  method).  Equipment  and  Dairy  Equipment  depre- 
ciated 10%  during  the  year  (diminishing  value  method).  All 
of  the  articles  of  equipment  are  on  hand  at  the  close  of  the  year 
except  the  old  hay  rake,  one  scoop  shovel,  3  grain  sacks,  pair  of 
sheep  shears  and  a  jack  screw,  the  latter  two  being  located 
at  the  farm  of  a  neighbor  to  whom  they  had  been  loaned. 

Livestock  Inventory:  Cattle — 20  milch  cows  at  $60  each;  5 
calves  at  $28  each;  1  two-year-old  $35.  Swine:  1  boar,  $50;  17 
sows  at  $37;  35  pigs  at  $15.  Horses:  12  at  $150  each;  3  colts  at 
$85  each.  Poultry:  120  chickens,  all  kinds  averaging  $0.90  each; 
12  turkeys,  averaging  $1.70  each. 

Products  Inventory:  500  bushels  com  at  $1.25;  350  bushels 
oats  at  $0.45;  15  tons  timothy  at  $12;  22  tons  silage  at  $3.75; 
20  tons  straw  at  $3.80;  4  cwt.  mill  feed  at  $1.40;  100  bushels 
wheat  at  $1.70.  ' 

Miscellaneous  Supplies  Inventory:  2  reels  barbed  wire  for 
repairs  to  fences  at  $4.50;  %  keg  staples  at  $5;  one  barrel 
gasoline,  $6.50. 

Household  Inventory:  Furnishings  complete  valued  at  $900. 

2.  Using  the  same  journal,  cash  book,  ledger  and  comparative 
inventory  record  as  in  problem  1  above,  continue  keeping  the 
books  of  W.  L.  Miller  for  the  fiscal  year  Feb.  1,  1917,  to  Jan. 
31,  1918,  inclusive.  The  inventory  record  already  contains  the 
quantities  and  necessary  values  as  of  Feb.  1,  1917.  If  your 
trial  balance  after  closing,  as  in  problem  1  (e)  above,  was  cor- 

*No  depreciation  is  recorded  for  tile,  hence  replacements  are 
charged  to  General  Expense. 


It? 


162 


FARM  ACCOUNTING 


rect,  you  are  ready  to  proceed  with  the  succeeding  yearns  rec- 
ord. 

(a)  Make  entries  in  simple  journal  and  cash  book  for  the 
year's  transactions: 

(b)  Post  to  the  ledger  and  take  a  trial  balance,  using  the 
same  ledger  accounts  as  in  problem  1  above  when  possible. 

(c)  Make  and  post  the  necessary  journal  entries,  closing  the 
proper  accounts  into  Loss  and  Gain  account,  and  the  latter  into 
Capital  account. 

(d)  Rule  off  the  accounts  and  bring  down  the  necessary  bal- 
ances or  inventories. 

(e)  Take  a  trial  balance  after  closing.  The  inventories  at  the 
close  of  the  year  are  to  be  placed  in  the  space  reserved  for  the 
third  inventory  in  the  comparative  inventory  record. 

Feb.  2,  1917.  He  buys  one-half  barrel  machine  oil  for  $7 
cash. 

Feb.  28.  Buys  one  com  planter,  $32  cash. 

Mar.  1.  Sells  100  bushels  of  wheat  at  $2.  Sells  210  bushels 
of  oats  at  $0.60.  Pays  $150  interest  on  mortgage  note  for  six 
months  ended  today.  He  also  pays  $500  in  reduction  of  the  prin- 
cipal. 

Mar.  16.  Sells  his  walking  plow  for  $6  ^  and  buys  a  new  gang 
plow  for  $53  cash. 

Mar.  28.  Sells  some  shotes  (2500  lbs.)  at  $14  per  cwt. 

Apr.  1.  His  son  Wayne  withdraws  from  college  and  agrees 
to  work  on  the  farm  for  $25  in  cash  per  month  and  his  board, 
which  is  valued  at  $15  a  month.  The  regular  wage  is  $40  a 
month  and  board.  (No  entry  is  necessary  until  the  close  of  the 
month  or  until  he  draws  some  cash  on  account.) 

Apr.  22.  Receives  cash  from  sale  of  eggs,  $12. 

Apr.  30.  Sells  to  Cooperative  Creamery  on  account  300  lbs. 
butter  fat  at  $0.35. 

Apr.    30.  Wayne   is   credited   with    monthly   wage   including 

*It  is  necessary  only  to  credit  equipment  and  debit  cash  with  $6 
for  the  sale  of  the  old  plow.  The  entry  for  depreciation  is  supposed 
to  take  care  of  the  loss. 


IS 


SPECIAL  ACCOUNTS  AND  ENTRIES         l63 

board.i     (Dr.  Labor  $25;  Cr.  Wayne  $25;  also  Dr.  Labor  $15; 
Cr.  Household  $15.) 

May  10.  Receives  a  check  from  Cooperative  Creamery  $298.50 

in  full  of  account. 

May   31.  Entry  required  for  services  of  Wayne  in   May. 

June  16.  Pays  $40  cash  for  some  new  household  furnishings— 
1  rocking  chair  and  1  rug  for  sitting-room. 

June  30.  Entry  required  for  services  of  Wayne  in  June. 

July  3.  Wayne  draws  $20  cash. 

July  15.  Sells  eight  tons  timothy  hay  at  $17  a  ton. 

July  31.    Wayne  is  credited  with  July  labor. 

Aug.  18.  Sells  1600  bu.  wheat  to  the  Mutual  Elevator  Co.,  at 
$2  a  bushel  and  receives  $1200  in  cash  and  a  $2000  note,  payable 
in  90  days  from  Aug.  18,  with  interest  at  6%  per  annum. 

Aug.  18.  He  discounts  the  $2000  note  of  the  Mutual  Elevator 
Co.  at  the  bank,  which  deducts  $30  discount  and  gives  him  credit 
in  his  checking  account  for  the  proceeds.  (Debit  Cash  and  credit 
Notes  Receivable  $2000  on  the  cash  receipts  side.  Debit  General 
Expense,  and  credit  Cash  for  $30  on  the  cash  payments  side.) 

Aug.  20.  He  pays  L.  List  $780,  of  which  $500  is  in  payment 
of  note  of  Mar.  1,  1916,  $30  for  interest  on  same,  and  $250  to 
settle  the  open  account.  (The  note  did  not  draw  interest,  but 
it  and  the  open  account  have  remained  unpaid  so  long,  that  the 
$30  is  contributed  in  lieu  of  interest.) 

Aug.  31.  Wayne  is  credited  with  August  labor. 

Sept.  1.  Pays  $135  interest  on  mortgage  note  for  6  months 

ended  today.^ 

Sept.  1.  Pays  $2500  in  reduction  of  the  principal  of  the  mort- 
gage note. 

Sept.   16.   Pays   for   sundry   labor   during   threshing   season 

$7. 

Sept.  16.  Wayne  decides  to  return  to  college,  so  is  credited 

*It  should  be  noted  that  Wayne  does  not  draw  any  cash  at  this 

time. 

*  Note  that  this  interest  payment  is  $15  less  than  the  preceding  ones 
on  March  1  and  September  1  of  each  year.  It  is  due  to  the  fact  that 
$500  was  paid  off  on  March  1,  1917,  leaving  only  $4500  to  draw  in- 
terest at  6%  from  March  1  to  September  1,  1917. 


)l 


164 


FARM  ACCOUNTING 


with    one-half   month^s   wages   for   Sept.      (The   Household   is 

credited  for  his  board  for  same  period.) 

Sept.  17.  Gives  Wayne  $117.50  to  close  his  account  and  a 

special  allowance  of  $200  more.    (This  $200  is  not  a  farm  expense 

and  should  accordingly  be  charged  to  Household.) 

Oct.  1.  Some  of  the  twelve-inch  trunk  tiling  in  field  No.  3 
being  inadequate  has  been  removed  and  replaced  by  new  fourteen- 

inch  of  similar  grade.  The  larger  size  tile  cost  $85,  which  was 
$15  more  than  the  twelve-inch.  (Credit  cash  $85,  debit  Land  $15 
and  debit  General  Expense  $70.) 

Note.— Since  the  labor  required  in  making  the  change  is  not  a 
proper  charge  to  Land  account  under  the  conditions,  it  need  not 
be  considered  here.  Mr.  Miller  did  the  work,  so  it  will  be  charged 
to  Labor  account  as  part  of  the  $600  entry  at  the  close  of  Ihe 
year. 

Oct.  30.  Sells  his  automobile  for  $175  cash.* 
Oct.  31.  Sells  250  lbs.  butter  fat  for  $87.50  cash. 
Nov.  18.  Sells  20  turkeys  for  $50  and  60  chickens  for  $100 
cash. 

Nov.  30.  Sells  200  lbs.  butter  fat  for  $70  cash. 
Dec.  28.  Pays  $35  for  a  trip  for  self  and  family.     (This  is 
not  an  expense  of  operating  the  farm.) 

Dec.  31.  Pays  $10  for  extra  labor  while  away.  (Debit  Labor 
account.) 

Jan.  16,  1918.  Pays  fire  insurance  premium  on  a  one  year 
policy,  $15. 

Jan.  31.  Pays  taxes  for  the  year  $140. 

Jan.  31.  An  entry  is  made  to  adjust  labor  of  Wayne  to  the 
standard  cost  of  hired  help  during  the  months  Apr.  1  to  Sept.  16. 

Jan.  31.  The  proprietor  values  his  labor  for  the  year  at  $600. 

Jan.  31.  The  inventories  of  properties  requiring  an  inventory 
at  the  close  of  the  year  are  indicated  by  the  following  facts  and 
figures:  Buildings  depreciated  5%  during  the  year  (diminishing 
value  method).  Equipment  and  Dairy  Equipment  depreciated 
10%  during  the  year  (diminishing  value  method).  All  of  the 
articles  of  equipment  are  on  hand  at  the  close  of  the  year  except 

*  It  is  necessary  only  to  credit  Equipment  and  debit  Cash  with  $175. 
The  depreciation  is  supposed  to  take  care  of  the  loss. 


SPECIAL  ACCOUNTS  AND  ENTRIES 


165 


those  indicated  in  the  transactions  since  Jan.  31,  1917,  as  having 
been  sold.  The  articles  of  equipment  purchased  during  the  year 
must  be  considered  in  the  Inventory  Record. 

Livestock  Inventory:  Cattle:  21  milch  cows  at  $60;  7  calves 
at  $28 ;  3  two-year-olds  at  $35.  Swine :  1  boar,  $50 ;  20  sows  at 
$37;  30  pigs  at  $15.  Horses:  13  at  $150;  3  colts  at  $85.  Poul- 
try: 90  chickens,  all  kinds,  averaging  $0.90  each;  8  turkeys, 
averaging  $1.70  each. 

Products  Inventory:  700  bushels  corn  at  $1.40;  300  bushels 
oats  at  $0.45;  12  tons  timothy  hay  at  $12;  20  tons  silage  at  $4; 
15  tons  straw  at  $3.90. 

Miscellaneous  Supplies  Inventory:  2  reels  barbed  wire  for  re- 
pairs to  fences  at  $4.50;  ^  barrel  machine  oil,  $3.75. 

Household  Inventory:  Furnishings  complete,  valued  at  $900. 

3.  On  April  1,  1916,  Mr.  John  Jones,  proprietor  of  the  Lone 
Tree  Farm,  takes  an  inventory  of  his  farm  possessions;  and 
after  ascertaining  his  wealth  as  valued  in  the  inventory  decides 
to  keep  accounts  of  his  transactions  in  a  systematic  way. 

He  accordingly  provides  himself  with  a  cash  journal  and 
ledger.  Cash-journal  columns  are  used  as  follows:  Household 
Dr.,  Ed  Wise  Dr.,  Cash  Dr.,  Sundry  Dr.,  Sundry  Cr.,  Cash  Cr., 
Ed.  Wise  Cr. 

You  are  asked  to  keep  the  books  for  him,  recording  all  the 
transactions  to  the  best  of  your  ability;  and  posting  them  to 
the  ledger  under  the  proper  account  titles.  The  keeping  of  the 
inventory  record  book  is  omitted. 

The  inventory  taken,  April  1,  1916,  contains  the  following 
figures:  Land,  $15,000;  buildings,  $3000;  horses,  $470;  cattle, 
$70;  hogs,  $1000;  sheep,  $500;  com,  $319.55;  potatoes,  $2.70; 
clover  hay,  $69;  seed  com,  $32.20;  mill  feed,  $25.86;  equipment, 
$739;  cash,  413;  household  furnishings,  $700. 

Since  he  does  not  raise  oats,  any  oats  he  buys  are  to  be  con- 
sidered as  feed. 

The  transactions  are  as  follows: 

April  8.  He  receives  a  money  order  for  $15  from  Wm.  George 
for  seed  com,  which  is  shipped  by  freight. 

April  9.  Ships  seed  com  to  J.  Green,  having  received  $28  in 
payment  of  same,  today. 


tf 


166 


FARM  ACCOUNTING 


April  25.  Pays  Ed.  Wise  $15  for  12  days'  labor.  (This  does 
not  require  the  use  of  the  special  Ed.  Wise  columns.) 

May  2.  Receives  from  J.  M.  Whiton  4  bushels  of  seed  potatoes; 
and  sends  him  a  New  York  draft  for  $16  in  payment.  The 
bank  charges  10c  for  the  draft.  (Debit  potatoes  $16,  General 
Expense  $0.10  and  credit  cash  $16.10.) 

May  3.  Buys  2  tons  of  middlings  at  $22,  and  a  barrel  of  salt, 
$1.50  (consider  both  items  as  Feed). 

May  5.  Has  1000  each  of  envelopes  ($2.50)  and  letter  heads 
($3.75)  printed,  paying  cash  for  same. 

May  7.  Has  had  so  much  trouble  to  get  competent  help  on  the 
farm  that  he  makes  a  contract  with  Ed.  Wise,  who  has  been 
working  for  him  off  and  on  for  some  time,  to  work  by  the  year 
at  $420.     Wise  is  to  board  all  the  extra  help  employed  on  the 
farm,  and  in  addition  to  the  wages  agreed  on,  to  have  a  truck 
patch,  pasture  for  cow  and  house  rent  free  of  charge.     Con- 
tract is  dated  May  1.     It  was  mutually  agreed  that  Mr.  Jones 
should  credit  Mr.  Wise  at  the  close  of  each  month  with  the  amount 
he  had  earned  during  the  month;  and  that  Mr.  Wise  could  draw 
against  the  account  at  any  time. 
May  10.  Buys  a  sheep  shearing  machine,  $15. 
May  25.  Pays  Eli  Johnson  $40  for  stallion  service. 
May  31.  Credits  Wise  with  wages. 

June  2.  Wm.  George,  to  whom  Jones  shipped  seed  com  on 
April  8,  writes  that  it  hasn't  arrived— that  it  is  now  too  late- 
he  can't  accept,  and  wants  his  money  refunded.  In  order  to 
retain  the  good  will  of  his  customer,  Mr.  Jones  refunds  the  money 
($15)  by  bank  draft;  and  makes  a  claim  against  the  A.  D. 
R.  R.  Co.  for  the  amount,  including  10c  for  the  draft.  (Debit 
the  R.  R.  Co.  with  the  full  amount  paid.  If  the  R.  R.  Co.  should 
not  settle  within  a  reasonable  time,  their  account  would  then 
be  closed  into  General  Expense  as  a  bad  debt.) 

June  8.  Sells  his  wool— 726  lbs.  at  16c.     He  pays  60c  for 
resetting  shoes  on  Prince,   and  $3  for  mower  repairs. 

June  22.     Pays  John  Dole  and  Sam  Peck  each  $6  for  three 
days'  labor. 

June  24.  Sells  20  hogs,  averaging  230  lbs.  each,  at  $13.50. 


SPECIAL  ACCOUNTS  AND  ENTRIES  167 


June  24.  Pays  for  household  supplies  $22  and  for  furnish- 
ings $38. 

June  28.  Ed.  Wise  draws  $20  on  account. 

June  30.  Ed.  Wise  is  credited  with  wages. 

July  20.  Sends  $6  and  $5.20  respectively  to  two  farm  periodi- 
cals to  pay  for  seed  corn  advertisements.  The  money  orderp: 
cost  him  16c.     (Debit  Seed  Corn  $11.20,  General  Expense  $0.16.) 

July  21.  Accepts  the  stock  scale  put  in  for  him  by  E.  Thomas, 
and  pays  $65  for  it. 

July  28.  Buys  100  bushels  of  oats  at  50e. 

July  31.  Credits  Ed.  Wise  with  wages. 

Aug.  3.  Gives  Ed.  Wise  $10  on  account. 

Aug.  15.  The  roads  are  good  and  he  has  the  time,  so  he  puts 
in  the  coal  needed  by  the  household  for  winter,  10  tons  at 
$4.75. 

Aug.  23.  Pays  Joe  Morgan  $24  for  threshing  800  bushels  of 
wheat  at  3c. 

Aug.  26.  Pays  $18  for  household  supplies  and  $25  for  cloth- 
ing. 

Aug.  28.  Buys  100  lbs.  linseed  meal  at  $27  a  ton,  and  a  keg  of 
nails  at  $3.70.     (Debit  Building  Expense  for  the  nails.) 

Aug.  30.  Sells  80  bushels  of  wheat  at  $2. 

Aug.  31.  Credits  Ed.  Wise  with  wages. 

Sept.  5.  Buys  21/2  tons  of  fertilizer  at  $18.     (Debit  Fertilizer.) 

Sept.  8.  Buys  two  tons  of  middlings  for  $24  a  ton. 

Sept.  10.  Gives  his  wife  $20. 

Sept.  20.  Buys  4  bushels  of  timothy  seed  for  $10.  (Debit 
1917  timothy  crop.) 

Sept.  27.  Pays  freight  on  timothy  seed  $0.60.  (Debit  1917 
timothy  crop.) 

Sept.  28.  Pays  John  Betts  $22.50  for  ten  days'  labor. 
Sept.  30.  Credits  Ed.  Wise  with  wages. 
Oct.  3.  Gives  Ed.  Wise  $10  on  account. 
Oct.  15.  Sells  25  head  of  hogs,  averaging  200  lbs.,  for  $13 
a  cwt. 

Oct.  20.  Sells  150  bushels  of  potatoes  at  $1.80.  (Consider 
potatoes  as  a  crop  account.) 

Oct.  25.  Takes  20  bushels  of  potatoes  for  personal  use  and 


if 


1G8 


FARM  ACCOUNTING 


I 


3 
'I  ■' 


f 


also  gives  Ed.  Wise  20  bushels,  charging  $1.70  a  bushel  in  each 
case.  The  truck  patch  allowed  Ed.  Wise  did  not  raise  potatoes. 
(No  cash  is  involved  in  the  transaction.) 

Oct.  30.  Pays  John  Betts  $2.25  a  day  for  15  days'  work. 

Oct.  31.  Credits  Ed.  Wise  with  wages. 

Nov.  15.  Sells  117  lambs,  averaging  100  lbs.,  at  $9.50  per  cwt. 
Buys  500  bushels  of  com  at  $1.50,  not  for  seed. 

Nov.  20.  Sells  34  head  of  hogs  at  $12  per  cwt.  Average  weight 
is  220  lbs. 

Nov.  23.  Pays  for  husking  his  com  crop,  2000  bushels  at  3c  a 
bushel. 

Nov.  29.  According  to  contract  made  in  March,  he  sells  for 
cash  to  the  Williams  Seed  Co.,  his  crop  of  corn  for  seed  at  25c 
a  bushel  above  market  price.  After  sorting,  it  amounts  to  1600 
bushels,  calculated  at  $2  a  bushel.  (Dr.  Seed  Cora,  Cr.  Com 
$2800  [1600  at  $1.75]  Dr.  Cash,  Cr.  Seed  Corn  $3200  [1600  at 
$2].) 

Nov.  30.  Pays  John  Betts  and  Sam  Peck  each  $22.50  for  ten 
days'  labor. 

Nov.  30.  Credits  Ed.  Wise  with  wages. 

Dec.  5.  Ed.  Wise  is  given  3  hogs  to  butcher,  same  to  be 
charged  to  his  account.  Weight  averages  240  lbs.  at  $12  per 
cwt. 

Dec.  8.  Butchers  3  hogs  himself.  Average  weight  230  lbs.  at 
$12  per  cwt. 

Dec.  10.  Has  some  shoeing  done,  $4.75. 

Dec.  15.  Gives  his  wife  $50,  and  takes  $47  himself  for  per- 
sonal use. 

Dec.  18.  Buys  200  bushels  of  oats,  paying  55c.  He  renews 
his  subscriptions  to  various  stock  and  farm  joumals,  costing 
$6.60.  He  also  pays  12c  for  money  orders,  and  $2  for  postage 
stamps.  (Subscriptions  to  farm  journals  are  charged  to  Gen- 
eral Expense.  Subscriptions  to  popular  journals  and  news- 
papers are  charged  to  Household.) 

Dec.  23.  Gives  Ed.  Wise  a  check  for  $50  and  also  writes  an- 
other for  $10  for  personal  use. 

Dec.  31.  Credits  Ed.  Wise  with  wages. 

Jan.  12,  1917.  Withdraws  $30  from  the  bank  and  spends  all  of 


SPECIAL  ACCOUNTS  AND  ENTRIES  l69 

it  while  attending  annual  meeting  of  the  State  Board  of  Agricul- 
ture. (This  is  considered  as  a  business  rather  than  a  pleasure 
trip.) 

Jan.  22.  Receives  a  check  from  the  A.  D.  R.  R.  Co.  for  $15.10 
for  his  claim  made  in  June  for  seed  com  lost  in  transit. 

Jan.  31.  Credits  Ed.  Wise  with  wages. 

Feb.  1.  Pays  taxes  $118.43. 

Feb.  2.  Gives  Ed.  Wise  a  check  for  $10.     He  has  the  shoes 
sharpened  on  Jack  and  Jim,  for  which  he  pays  $1.40. 

Feb.  7.  Buys  a  bob  sled,  $15,  and  also  buys  a  ton  each  of 
bran,  $21;  and  middlings,  $24. 

Feb.  10.  Buys  4i/^  bushels  of  clover  seed  for  cash,  at  $9  per 
bushel.     (Debit  1917  clover  crop.) 

Feb.  15.  Buys  the  40  acres  adjoining  the  Lone  Tree  Farm 
for  $82.50  an  acre.  He  pays  $2000  in  cash  and  The  First  National 
Bank  loans  him  the  balance  at  5%  on  three  years'  time,  agree- 
ing to  accept  payment  of  the  whole  or  any  part  of  the  principal 
on  any  interest  paying  date.  He  secures  the  bank  by  mortgage. 
(Credit  Mortgage  Payable  account  for  amount  borrowed,  show- 
ing name  of  bank  in  explanation  column.  Debit  Land  for  en- 
tire purchase  price.) 

Feb.  27.  Pays  for  2000  four-inch  tile  at  $12.50  a  thousand. 
(Debit  General  Expense.) 

Feb.  28.  Credits  Ed.  Wise  with  wages. 

Mar.  2.  He  gives  Ed.  Wise  a  check  for  $20. 

Mar.  9.  He  buys  a  pair  of  rubber  boots  for  himself,  $4.50. 

Mar.  20.  Gives  his  check  for  1000  feet  of  lumber,  $27,  to  be 
used  in  repairing  buildings.     (Debit  Building  Expense.) 

Mar.  31.  Credits  Ed.  Wise  with  wages. 

Mar.  31.  An  inventory  taken  on  this  date  resulted  in  the  fol- 
lowing aggregate  amounts  being  shown  as  values  of  the  various 
possessions : 

Land  $18,300;  Buildings  have  depreciated  5%  during  the 
year  and  equipment  10%  of  the  value  at  the  beginning.  Horses, 
$500;  cattle,  $75;  hogs,  $215;  sheep,  $600;  com  $560;  potatoes, 
$20;  clover  hay,  $90;  seed  com,  $30;  fertilizer,  $30;  1917  timothy 
crop,  $10.60;  1917  clover  crop,  $40.50;  mill  feed,  $74.10.  The 
com  consists  partly  of  that  left  after  sorting  seed  for  sale.    The 


170 


FARM  ACCOUNTING 


household  furnishings  are  valued  at  $700.    All  tile  purchased  on 
Feb.  27  are  still  on  hand ;  also  the  lumber  bought  on  Mar.  20. 

(a)  Make  all  the  entries  for  the  transactions  given  above. 

(b)  Post  all  entries  to  the  proper  ledger  accounts,  ruling  off 
cash  journal. 

(c)  Take  a  trial  balance  immediately  after  posting  the  last 
transaction,  before  considering  inventories. 

(d)  Considering  inventories,  prepare  a  Loss  and  Gain  account 
in  the  ledger,  and  rule  off  the  necessary  accounts,  bringing  down 
balances  or  inventories  whenever  the  nature  of  the  account  re- 
quires it. 

(e)  Take  a  trial  balance  after  closing  which  may  be  used  also 
as  a  list  of  the  Resources  and  Liabilities  as  of  March  31,  1917. 


REVIEW  QUESTIONS 

1.  Describe  the  method  of  recording  the  value  of  services  of 

a  hired   man  employed  regularly,  but  drawing  cash   as 
wanted   at   irregular  intervals. 

2.  What  is  the  general  principle  governing  debits  and  credits 

to  Notes  Receivable  account? 

3.  What  three  methods  of  parting  with  a  note  receivable  cause 

credit  entries  in  the  account? 

4.  Why  must  Notes  Receivable  account  always  have  a  debit  bal- 

ance, if  any? 

5.  Is  interest  on  notes  included  in  the  note  account? 

6.  State  two  ways  in  which  it  can  be  determined  whether  a 

promissory   note   parted   with   is   credited   to   Notes   Re- 
ceivable or  Notes  Payable  account. 

7.  Why  must  Notes  Payable  account  always  have  a  credit  bal- 

ance if  any? 

8.  What  negotiable  instruments  are  considered  as  cash  rather 

than  notes  receivable  or  payable?     How  are  mortgages 
treated  in  accounts? 

9.  What  principles  govern  the  debits  to  Land  account  when 

opening  a  set  of  books?    When  purchasing  land?    When 
inheriting  land? 


\ 


SPECIAL  ACCOUNTS  AND  ENTRIES  171 

10.  What  items  may  be  charged  to  Land  account,  that  do  not 

represent  the  actual  amount  paid  for  the  land? 

11.  Discuss  the  charges  to  be  made  for  fence  or  tile  repairs  under 

varying  conditions. 

12.  Why  is  it  not  considered  good  accounting  to  record  apprecia- 

tion or  depreciation  of  land  in  the  books  of  account? 

13.  What  is  the  nature  of  the  entry  to  record  a  sale  of  land  for 

more  than  the  book  value?    For  less  than  the  book  value? 

14.  Under  what  conditions  is  an  account  with  buildings  debited? 

When  credited? 

15.  What  is  a  mixed   account? 

16.  Discuss  the  use  of  the  Merchandise  account  in  commercial  ac- 

counting. 

17.  Why  is  the  use  of  the  mixed  account  considered  by  some  as 

unscientific  ? 

18.  Name  four  reasons  why  objections  to  the  mixed  account  do 

not  apply  in  farm  accounting. 

19.  What  class  of  accounts  on   a  farm  are  generally  used  as 

mixed  accounts? 

20.  What  entries  are  commonly  made  in  the  account  with  horses? 

21.  Discuss  the  advisability  of  keeping  one  account  with  work 

horses  and  one  with  other  horses. 

22.  What  is  the^  nature  of  the  entries  in  Swine  account? 

23.  When  is  it  better  to  keep  separate  accounts  for  dairy  and 

beef  cattle  than  to  have  them  combined  into  one  account? 

24.  What  peculiarities  exist  in  cattle  raising  that  make  it  diffi- 

cult to  record  transactions  accurately  as  regards  cost? 

25.  Make  suggestions  for  keeping  proper  accounts  when  one  is 

engaged  in  raising  dairy  cattle  for  the  purpose  of  dis- 
posing of  dairy  products  and  also  for  selling  dairy  cattle, 
quite   extensively. 

26.  Discuss  the  account  or  accounts  required  to  record  poultry 

operations.  What  advantage  is  there  in  keeping  two  ac- 
counts for  poultry  transactions? 

27.  Discuss  briefly  the  recording  of  transactions  in  connection 

with  sheep. 

28.  What  accounts  might  be  used  to  record  transactions  involv- 

ing farm  machinery  and  tools? 


172 


FARM  ACCOUNTING 


29.  Make  suggestions  concerning  transactions  with  tractors,  corn 

shredders,  threshing  machines,  and  hay  balers. 

30.  Discuss  the  nature  of  debits  and  credits  recorded  in  com, 

oats  and  wheat  accounts. 

31.  What  is  the  nature  of  the  transactions  requiring  entries  in 

the  household  account? 

32.  Why  is  the  household   account  such   an   important   one  in 

farm  accounting?    Compare  the  business  of  farming  with 
other  classes  of  business  in  this  respect. 

33.  Why  is  labor  account  debited  with  the  value  of  food  and 

lodging  given  to  hired  help? 

34.  Present  two  ways  of  making  entries  for  labor  of  a  permanent 

hired  hand  receiving  board  and  lodging  free,  and  drawing 
amounts  of  cash  from  time  to  time  as  needed. 

35.  How  is  labor  performed  by  members  of  the  household  re- 

corded? 

36.  Discuss  the  entries  to  show  correct  costs  when  a  member  of 

the  household  is  paid  a  nominal  amount  in  cash  for  his 
labor,  but  not  an  amount  which  he  is  really  worth. 

37.  Discuss  the  entries  for  feed  bought,  when  all  used  for  the 

same  class  of  livestock.    When  used  for  several  classes. 

38.  How  is  commercial   fertilizer  recorded   in   the  books? 

39.  What  is  an  inventory?     What  accounts  are  affected  by  in- 

ventories ? 

40.  How  are  accounts  affected  by  inventories? 

41.  Which  results  in  the  showing  of  the  larger  gain  in  an  ac- 

count, a  large  inventory  or  a  small  inventory  at  the  close 
of  the  year? 

42.  Does  the  large  or  the  small  inventory  in  an  account  at  the 

beginning   of   a   year  result   in   the   greater   gain   during 
the  year,  other  entries  being  the  same? 

43.  When  an  account  is  credited  with  the  value  of  the  inven- 

tory at  the  close  of  the  year  what  account  is  debited? 
Discuss. 

44.  Is  the  credit  for  inventory  at  the  close  of  a  period  made 

before  or  after  taking  the  preliminary  trial  balance?    Be- 
fore or  after  the  trial  balance  after  closing? 


SPECIAL  ACCOUNTS  AND  ENTRIES 


173 


45.  Why  does  the  entry  for  the  inventory  not  have  to  appear 

in  any  book  of  original  entry? 

46.  After  closing  inventory  is  properly  recorded  in  an  account 

what  steps  are  necessary  to  complete  the  closing  of  the 
account  ? 

47.  Discuss  the  reason  for  debiting  and  crediting  the  same  ac- 

count with  the  inventory  value. 

48.  How  does  a  natural  increase  in  livestock  affect  the  loss  or 

gain  of  the  specific  livestock  account? 

49.  Illustrate  the  method  of  making  the  inventory  and  closing 

entries  in  an  account  that  results  in  a  loss. 

50.  Under  what  conditions  is  it  unnecessary  to  record  an  inven- 

tory value  in  an  account,  although  an  inventory  exists? 
Why? 

51.  What  is  the  procedure  in  taking  and  recording  a  physical 

inventory  ? 

52.  What  advantage  is  there  in  having  a  detailed  inventory  in 

comparative  form? 

53.  What  is  the  point  of  contact  between  the  inventory  record 

and  the  account? 

54.  How  is  general  expense  account  affected  by  inventories? 

55.  How  is  the  inventory  record  used   in   making  the   opening 

entries   at   the  time  of  opening  ledger  accounts  for  the 
first  time? 

56.  Why  are  dairy  and  general  equipment  kept  separate  in  the 

inventory  record  and  also  in  the  ledger? 

57.  How  is  the  value  of  equipment  determined?    How  is  it  shown 

in  the  inventory  record?     Discuss  the  advantages  of  this 
method  of  valuation. 

58.  Why  is  it  not  necessary  to  find  the  aggregate  total  of  all 

items  listed  in  the  inventory  record? 

59.  State  how  taking  an  inventory  is  a  method  of  calculating 

depreciation.     What  method  is  it  called? 

60.  What  is  the  straight  line  method  of  calculating  deprecia- 

tion?    Illustrate. 

61.  What  is  the  diminishing  value  method  as  used  on  the  farm? 

Illustrate.     Compare  the  two  methods. 


Ill 


! 


174 


FARM  ACCOUNTING 


I 


62.  What  debits  and  credits  are  expressed  to  record  depreciation 

of  equipment? 

63.  Discuss  the  principles  govemino^  depreciation  of  buildings. 

64.  What  is  the  object  of  making  closing  journal  entries  f 

65.  Discuss  the  method  and  form  of  closing  journal  entries.    Why 

are  they  always  entered  in  the  "sundry"  column,  even  in 
the  cash  journal? 


CHAPTER  VII 


SPECIAL  ACCOUNTS  AND   ENTRIES    (Continued) 

Fair  Exhibits. — Considerable  expense  is  incurred,  and 
some  income  derived  by  some  farmers  as  a  result  of  ex- 
hibits of  livestock  and  farm  products  at  fairs.  If  a  farmer 
has  an  exhibit  of  several  commodities  or  groups,  it  would 
be  advisable  to  open  an  account  called  *'Fair  Exhibits," 
to  vi^hich  is  debited  all  expenses  incurred  in  preparing  and 
transporting  exhibits,  together  with  any  entrance  fees  and 
cost  of  protection  while  at  the  fair.  The  account  is  cred- 
ited with  any  income  from  the  exhibits,  except  that  income 
from  the  sale  of  the  articles  exhibited  is  credited  direct  to 
the  livestock  or  farm  produce  accounts  representing  the 
articles  sold.  Any  balance  in  the  Fair  Exhibits  account 
is  closed  into  Loss  and  Gain  account,  at  the  close  of  the 
year. 

If  one  deals  in  one  specialty  that  he  exhibits  largely 
at  fairs,  such  an  account  would  be  opened  as  described 
above,  but  the  balance  would  be  transferred  into  the  ac- 
count representing  the  specialty.  For  example,  a  farmer 
specializing  in  Poland  Chinas  and  exhibiting  them,  but 
nothing  else,  at  fairs,  keeps  an  account  called  **  Poland 
China  Exhibit."  After  all  expenses  and  incomes  of  the 
exhibit  are  entered  he  transfers  the  balance  to  Swine  ac- 
count before  finding  the  loss  or  gain  on  the  latter. 

Consignments. — Produce  or  livestock  shipped  or  placed 
in  the  hand,  of  someone  else  for  sale  on  commission  are 
known  as  consignments.  The  title  in  the  goods  remains 
with  the  consignor,  who  is  the  original   possessor.     The 

175 


(\ 


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1  '• 


I 


1 1 


u 


176 


FARM  ACCOUNTING 


possession  of  the  goods,  but  not  the  title,  is  transferred 
to  the  consignee,  who  is  the  party  receiving  the  goods  for 
sale.    The  consignee  is  sometimes  called  the  factor. 

In  recording  consignments  in  the  books  of  account  no 
debits  and  credits  are  expressed  in  the  books  of  the  con- 
signor at  the  time  of  sending  the  goods.  He  makes  a  mem- 
orandum in  a  notebook  or  in  the  back  of  the  journal,  in- 
dicating the  quantities  and  nature  of  the  products  or  live- 
stock sent,  to  whom  sent  and  any  other  facts  concerning 
the  terms  of  sale  and  so  on.  Any  freight  paid  or  other 
expense  incurred  in  sending  them  is  charged  to  the  prod- 
uce or  livestock  account  under  consideration. 

When  the  consignee  has  sold  the  goods  he  usually  re- 
mits in  the  form  of  cash  or  note.  At  such  a  time,  when 
the  cash  or  note  is  received,  the  debits  and  credits  of  the 
consignment  are  expressed.  Cash  account  or  Notes  Re- 
ceivable is  debited  and  the  proper  produce  or  livestock  ac- 
count credited.  This  credit  to  the  produce  account  is  for 
the  net  amount  after  the  consignee's  commission  and  ex- 
penses have  been  deducted,  as  shown  by  the  ''Account 
Sales,''  the  statement  accompanying  his  remittance.. 

There  are  several  methods  of  handling  consignments,  of 
which  the  one  described  is  the  simplest  to  operate  but  is 
not  the  most  theoretically  correct  one. 

The  records  from  the  viewpoint  of  the  consignee  do  not 
interest  the  farmer,  hence  are  not  presented  here. 

Auction  Sales. — No  account  with  auction  sales  is  neces- 
sary. The  sale  of  each  article  is  recorded  as  a  credit  to  the 
property  account  affected.  This  does  not  mean  that  a  sep- 
arate entry  is  made  for  each  article  sold.  Some  items  can 
be  grouped  in  a  single  entry. 

For  example,  the  sale  list  kept  by  the  clerk  of  the  sale 
forms  the  basis  for  the  entries.  If  one  cultivator,  two 
wagons,  one  hay  rake  and  one  walking  plow  are  sold  for 
$110  cash,  according  to  the  clerk's  record  the  entry  is: 


SPECIAL  ACCOUNTS  AND  ENTRIES  177 

Cash $110.00 

Equipment $110 .00 

If  the  same  equipment  were  sold  for  10%  cash  down  and 
a  note  for  the  balance,  the  entry  would  be : 

Cash $11.00 

Notes  Receivable 99 .  00 

Equipment $110.00 

Presuming  that  the  book  value  of  the  five  articles  sold  is 
$150,  an  entry  is  made  as  follows : 

Loss  on  Auction  Sale.  . .  .     $40.00 

Equipment $40 .00 

This  entry  reduces  Equipment  account  to  an  amount 
representing  the  value  of  the  equipment  still  on  hand,  and 
at  the  same  time  shows  the  loss  due  to  the  sale  at  auction. 

The  Loss  on  Auction  Sale  account  is  debited  with  loss 
from  other  classes  of  property  also.  For  example,  if  five 
cows  are  sold  at  a  price  aggregating  $35  below  their  inven- 
tory or  book  value,  an  entry  is  made  to  show  the  result  in 
this  way: 

Loss  on  Auction  Sale ....     $35 .00 

Cattle $35.00 

Considering  the  last  two  entries  above  as  being  the  only 
ones  affecting  the  Loss  on  Auction  Sale  account,  the  entry 
to  close  the  latter  account  is: 

Loss  and  Gain $75 .00 

Loss  on  Auction  Sale  $75.00 

This  entry  transfers  all  losses  due  to  the  special  auction 
sale  direct  to  Loss  and  Gain  account  rather  than  permitting 
them  to  appear  in  the  several  property  accounts  at  the 
close  of  the  year.     If  they  appeared  in  the  property  ac- 


178 


FARM  ACCOUNTING 


if! 


counts  it  would  tend  to  indicate  poor  management,  or  that 
some  property  cost  was  excessive,  when,  as  a  matter  of 
fact,  the  unusual  event— the  auction  sale— was  responsible 
for  the  loss. 

Fire  Loss.— Under  this  title  is  illustrated  the  method  of 
handling  the  transactions  incidental  to  loss  of  property  of 
any  sort  by  fire.  The  same  treatment  would  apply  in  case 
of  hail  insurance,  tornado  insurance  or  livestock  insurance. 

As  an  example,  assume  a  farm  having  a  blanket  fire 
policy  on  the  buildings  and  contents  amounting  to  $5000. 
If  the  buggy  and  tool  house  burns,  rendering  all  articles 
therein  useless,  the  insurance  adjuster  calculates  the 
amount  of  insurance  money  to  which  the  loser  is  entitled. 

For  the  purpose  of  recording  the  transactions  on  the 
books  it  is  necessary  to  credit  the  Buildings  account  with 
the  value  of  the  building  destroyed,  credit  Equipment  ac- 
count with  the  value  of  buggies  and  tools  that  were  in  the 
building  and  debit  Fire  Loss  account  with  the  sum  of  tl?e 
two  debits  named.  Credit  Fire  Loss  account  with  the  cash 
received  from  the  insurance  company,  debiting  Cash.  If 
there  was  nothing  else  to  consider,  the  balance  of  the  Fire 
Loss  account  would  now  show  a  loss  or  gain,  whose  balance 
would  be  transferred  to  Loss  and  Gain  account  at  the 
close  of  the  year. 

Quite  often,  however,  in  a  case  like  the  one  cited,  some 
of  the  remnants  can  be  sold  for  junk,  or  there  are'  parts 
from  which  salvage  can  be  recovered.  In  such  instances, 
the  Fire  Loss  account  is  credited  with  the  selling  price 
of  any  salvage  and  debited  with  any  expenses  incurred  in 
removing  such  parts  from  the  ruins  and  disposing  of  them. 
If  the  recovered  parts  are  retained  for  use  on  the  farm, 
credit  Fire  Loss  account  and  debit  Equipment  account! 
The  latter  account  being  credited  with  the  total  value  of 
contents  immediately  after  the  fire,  is  now  debited  with 
any  recovered  and  kept  for  further  use. 


SPECIAL  ACCOUNTS  AND  ENTRIES  179 

If  no  insurance  is  carried  the  Fire  Loss  account  is  oper- 
ated in  the  same  way,  except  it  is  not  credited  with  insur- 
ance recovered. 

Death  of  Livestock.— Livestock  deaths  covered  by  in- 
surance are  treated  in  a  way  exactly  similar  to  fire  losses, 
discussed  above. 

An  entry  may  or  may  not  be  made  for  loss  of  livestock 
at  time  of  death  when  not  insured.  If  it  is  not  made  at 
that  time,  the  loss  is  reflected  in  the  proper  livestock  ac- 
count at  the  time  of  recording  the  inventory  at  the  close 
of  the  year. 

The  only  difference  between  the  two  methods  is  that  in 
one  case,  the  loss  due  to  death  will  show  in  the  account 
as  a  separate  item;  while  in  the  other  it  will  be  merged 
in  with  all  other  items  of  expense  and  income  contributing 
to  the  net  loss  or  gain  on  that  class  of  stock. 

The  difference  in  results  under  these  two  methods  is 
brought  out  in  Illustrations  31  and  32.  Assume  a  swine 
herd  with  an  inventory  value  of  $400  at  the  beginning  of 
the  year,  and  $150  at  the  close.  Consider  that  expenses 
of  maintenance,  charged  to  the  account,  amount  to  $100, 
that  sales  amount  to  $140,  and  that  the  farm  value  of  hogs 
lost  through  cholera  is  $200. 

If  no  entry  is  made  in  the  Swine  account  when  the 
hogs  are  taken  by  cholera,  the  Swine  account  and  the  Loss 
and  Gain  account  as  far  as  affected  by  swine  will  appear 
as  in  Illustration  31. 

If  a  credit  entry  is  made  in  the  Swine  account  at  the 
time  the  hogs  are  taken  by  cholera.  Loss  and  Gain  account 
is  debited.  The  two  accounts  would  then  appear  as  in 
Illustration  32. 

Illustration  31  indicates  a  loss  of  $210  in  swine.  It  does 
not  show  what  the  result  of  the  ordinary  transaction^  was. 
Illustration  32  shows  a  loss  of  $10  due  to  the  ordinary 


I 


n 


h 


\ 


^.  ■; 


180 


FARM  ACCOUNTING 


ILLUSTRATION  31 


Accounts  Affected  by  Death  of  Livestock  when  No  Entry 

IS  Made  at  Time  of  Death 

Swine 


1916 

1916 

• 

Mar.    1  Inventory $400 

Dec.  22  Cash  sale 

$140 

1917 

1917 

Feb.  28  Expense  for  year     100 

Feb.  28  Inventory 

150 

Feb.  28 Loss  &  Gain... 

210 

$500 

$500 

1917 

Mar.    1  Inventory  down  $150 


Loss  and  Gain 


1917 

Feb.  28  Swine 


$210 


transactions  and  $200  from  unusual  events.  The  latter 
method  presents  the  facts  in  a  more  useful  way. 

Market  Gardening. — Retail  market  gardening  does  not 
involve  any  general  principles  not  presented  in  general 
farming  as  far  as  accounts  are  concerned.  The  nature  of 
the  expenses  differs  somewhat  and  in  keeping  cost  records 
the  details  involve  more  work,  but  the  principle  of  keeping 
necessary  accounts  to  show  results  applies  as  in  general 
agriculture.  In  one  respect  there  is  less  work  involved 
in  keeping  accounts  of  a  market  gardener  because  the  in- 
terrelation between  crops  and  livestock  does  not  have  to 
be  provided  for  in  the  cost  records. 

Crops  Sold  under  Contract.— There  is  a  class  of  farming 
allied  to  both  market  gardening  and  general  farming  that 


SPECIAL  ACCOUNTS  AND  ENTRIES 


181 


ILLUSTRATION  32 

«  Accounts  Affected  by  Death  of  Livestock  When  Entry 

IS  Made  at  Time  op  Death 


Swine 

1916 

1916 

Mar.    1  Inventory 

$400 

Dec.  22  Cash  sale 

$140 

1917 

1917 

Feb.  28  Expenses  for  yr. 

100 

Jan.   25  Died  of  cholera 

200 

Feb.  28  Inventory 

.150 

Feb.  28  Loss  and  Gain . 

10 

$500 

$500 

1917 

Mar.    1  Inventory  down 

$150 

Loss  and  Gain 


1917 

Jan.  25  Swine  (cholera)     $200 

Feb.  28  Swine    (operat- 

ing loss) 10 

t 

requires  special  consideration.  The  crops  sold  under  con- 
tract are  referred  to.  A  beet  sugar  concern  contracts  at 
the  beginning  of  the  season  for  all  the  beets  in  a  field  at 
so  much  a  ton,  and  agrees  to  furnish  the  labor  for  cultiva- 
tion and  harvesting.  A  similar  agreement  might  be  made 
concerning  a  field  of  cabbage,  cucumbers,  sweet  corn,  broom 
corn  or  other  crops. 

From  the  bookkeeping  point  of  view  no  entries  are  re- 
quired at  the  time  the  contract  is  made.  The  contract 
should  be  in  writing  in  order  to  be  enforceable  and  should 
be  carefully  preserved. 


182 


FARM  ACCOUNTING 


Since  the  labor  for  cultivation  and  harvesting  is  not 
employed  by  the  fanner  he  does  not  have  any  entries  to 
make  concerning  them.  Under  the  cost  niethod,  however, 
the  farmer  would  debit  the  beet  field  account  with  the 
labor  and  expenses  connected  with  the  preparation  of  the 
soil  and  the  planting. 

If  the  contract  calls  for  cash  on  delivery  of  the  beets, 
the  simple  entry  for  a  cash  sale  is  made,  crediting  Beets 
and  debiting  Cash.  If,  however,  the  payment  is  deferred 
until  sometime  later,  the  party  buying  the  beets  should  be 
debited  at  the  close  of  each  day  with  the  contract  price 
of  the  beets  delivered  during  the  day.  When  he  settles, 
he  is  credited  and  Cash  debited. 

Orchards. — For  accounting  purposes  the  orchard  is  con- 
sidered in  practically  the  same  light  as  the  annual  crops. 
It  has  some  peculiarities  that  must  be  reflected  in  the  ac- 
counts in  order  to  show  proper  results,  but  brings  up  few 
new  problems. 

The  orchard  is  charged  with  all  costs  of  clearing  and  pre- 
paring the  soil,  staking,  purchase  of  nursery  stock,  plant- 
ing, and  all  maintenance  charges  for  the  first  four  to  seven 
years  when  it  begins  to  yield.  All  expenses  thus  charged 
up  to  and  including  the  first  year  of  its  yield  are  consid- 
ered as  adding  to  the  value  of  the  orchard.  To  these  ex- 
penses are  added  interest  ^  on  the  investment  for  the  period 
mentioned.  The  resulting  debit  balance  is  the  figure  which 
is  to  be  considered  as  the  investment  in  the  orchard  during 
subsequent  years.  Any  expenses  after  that  time  are  to  be 
considered  as  operating  expenses  to  be  offset  against  the 
income  from  the  orchard  for  the  year  to  find  the  yearly 
loss  or  gain. 

In  finding  the  loss  or  gain,  an  account  called  Orchard 
Expense  and  Income  account  is  kept.    To  this  is  debited 
all  expenses,  after  the  first  bearing  year,  such  as  cultiva- 
*See  Appendix  for  the  rate  of  interest. 


SPECIAL  ACCOUNTS  AND  ENTRIES 


183 


tion,  care  of  trees,  harvesting,  and  overhead  charges,  in- 
cluding interest  on  the  investment  for  the  year.  It  is  cred- 
ited with  all  income  for  the  year  from  the  fruit.  The  bal- 
ance of  the  account  is  the  net  profit  for  the  year  and  is 
closed  into  Loss  and  Gain. 

This  method  of  handling  the  items  after  the  investment 
is  found,  leaves  the  investment  intact  in  the  Orchard  ac- 
count itself,  which  is  carried  as  a  resource  from  year  to 
year  until  the  orchard  starts  to  depreciate.  Orchard  ac- 
count is  then  credited  and  the  Orchard  Expense  and  In- 
come account  debited  for  depreciation.  The  time  of  this 
is  quite  indefinite,^  peach  trees  having  a  bearing  life  of 
only  about  nine  or  ten  years,  while  apple  trees  are  about 
in  their  prime  at  that  time,  the  twelfth  to  fourteenth  year 
of  their  growth. 

If  it  is  desired  to  know  which  variety  of  fruit  pays  best 
it  is  necessary  to  keep  detailed  cost  records.  The  one  that 
sells  for  the  highest  price  is  not  necessarily  the  one  that 
pays  best.  Perhaps  the  last  named  variety  requires  more 
spraying,  is  more  susceptible  to  frost,  is  more  expensive 
in  thinning,  or  in  pruning,  and  that  picking  costs  are  in- 
creased because  of  the  difficulty  in  finding  sufficient  color 
to  class  as  Fancy  or  Extra  Fancy.  Detailed  costs  are 
required  in  order  to  state  intelligently  that  one  class  or 
variety  pays  better  than  another.  Such  detail  could  be 
made  profitable  in  large  orchards,  but  not  in  the  average 
orchard  conducted  incidentally  with  general  farming  oper- 
ations. 

Woodland. — The  value  of  wooded  land  should  be  kept 
in  an  account  by  itself,  and  not  classed  with  farm  land 
until  it  is  cleared  /or  cultivation.  The  value  at  which  it 
is  placed  on  the  books  may  be  left  indefinitely,  since  the 
removal  of  the  wood  is  considered  as  making  it  more  val- 
uable for  tillage.     For  this  reason  a  Woodland  Expense 

*  Oregon  Agricultural  College  Experiment  Station  Bulletin  No.  132. 


184 


FARM  ACCOUNTING 


SPECIAL  ACCOUNTS  AND  ENTRIES 


185 


i 


and  Income  account  should  be  established,  to  which  is  cred- 
ited the  wood  charged  to  the  household  or  sold  for  cash; 
also  any  income  from  pasturage.  This  expense  and  income 
account  is  charged  with  taxes  and  (under  the  cost  method) 
with  interest  on  the  property. 

When  the  land  is  cleared  for.  tillage,  the  cost  of  grub- 
bing and  disposing  of  stumps  is  properly  charged  to  the 
property  account  ''Woodland"  in  order  to  arrive  at  its 
cost  as  tillable  land.  After  it  is  cleared,  the  balance  of 
the  account  is  transferred  to  Land  account. 

Bees. — The  operations  of  bees  are  recorded  in  the  account 
bearing  this  title.  It  is  charged  with  the  inventory  at  the 
beginning  and  all  expenses  of  operation;  and  is  credited 
with  the  income  and  the  inventory  at  the  close  of  the  pe- 
riod. Any  balance  remaining  after  these  entries,  is  carried 
to  Loss  and  Gain  account. 

The  inventory,  for  purposes  of  this  account,  consists  of 
the  value  of  the  hives,  honey,  and  all  apparatus  main- 
tained for  special  use  in  connection  with  the  bee  industry. 
Care  should  be  exercised  in  valuing  the  swarm,  on  account 
of  the  uncertainty  of  its  duration.  A  low  nominal  value, 
if  any,  should  be  used. 

Partnership. — The  form  of  the  organization  of  an  enter- 
prise does  not  alter  the  principles  of  recording  transactions 
except  at  the  beginning  of  business  and  at  the  close  of  a 
fiscal  period. 

There  have  been  only  two  principles  presented  up  to  the 
present  subject  that  do  not  apply  equally  in  a  single  pro- 
prietorship or  in  a  partnership.  Th^se  two  relate  to  the 
opening  of  the  books  at  the  beginning;  and  the  closing 
entry. 

In  the  case  of  a  partnership,  the  opening  entry  credits 
the  capital  in  two  or  more  amounts  depending  on  the  num- 
ber of  partners.     The  closing  entry  credits  each  partner 


with  his  share  of  the  profits,  or  debits  him  with  his  share 
of  the  losses. 

Opening  Entry  of  a  Partnership.— The  opening  entry  of 
a  partnership  shows  the  resources  brought  into  the  busi- 
ness, the  liabilities  assumed,  and  the  total  investment  of 
each  partner,  credited  to  his  Capital  account.  For  exam- 
ple, if  A.  B.  Clay  and  Ike  Laahre  enter  into  partnership 
on  a  rented  farm,  the  entries  in  Illustration  33  would  in- 
dicate the  amounts  contributed  by  each: 

ILLUSTRATION  33 

Partnership  Opening  Entries 

A  partnership  agreement  having  been  effected,  we  (A.  B.  Clay 
and  Ike  Laahre)  today  open  a  set  of  books  by  recording  our 
respective  investments  in  the  firm  of  Clay  and  Laahre  by  the 
following  entries: 

March  1,1917 

Cash $1,000 

Equipment 500 

Note  Payable $500 

A.  B.  Clay,  Capital.  . .  1,000 

March  1,1917 

Cash $1,000 

Horses 1,000 

Ike  Laahre,  Capital . . .  $2,000  . 

The  entries  of  Illustration  33  indicate  that  Clay  put  in 
$1000  net  capital  and  Laahre  $2000.  The  capital  of  the 
business  is  therefore  $3000.  In  a  partnership  each  part- 
ner has  a  capital  account  bearing  his  name.  In  the  case 
at  hand,  A.  B.  Clay's  Capital  account  is  credited  with 
$1000  and  Ike  Laahre 's  with  $2000.  In  order  to  find  the 
aggregate  capital  of  the  business  conducted  on  a  partner- 
ship basis,  it  is  necessary  to  take  the  sum  of  the  balances 
of  the  capital  accounts. 


!il 


;f 


186 


FARM  ACCOUNTING 


Closing  Entries  of  a  Partnership.— After  posting  the 
opening  journal  entries,  all  subsequent  entries  are  the  same 
as  for  a  single  proprietorship  until  the  Loss  and  Gain  ac- 
count is  closed.  With  two  owners  instead  of  one,  the  entry 
closing  Loss  and  Gain  account  assumes  the  form  presented 
in  Illustration  34. 

ILLUSTRATION  34 
Partnership  Closing  Entry 


$1,000 


Feb.  28, 1918 

Loss  and  Gain 

A.  B.  Clay,  Capital  (or  Drawing  a/c) $500 

Ike  Laahre  Capital  (or  Drawing  a/c) 50O 

It  is  seen  that  there  apparently  was  a  profit  of  $1000  as 
a  result  of  the  year's  operations.  One-half  of  this,  or 
$500,  is  credited  to  the  Capital  or  Drawing  account  of 
each  partner. 

This  procedure  may  seem  strange  in  view  of  the  fact 
that  Laahre  has  twice  as  much  capital  invested  as  Clay. 
Why  does  he  not  receive  credit  for  twice  as  much  profit 
as  Clay,  or  2/3  of  the  total  profit?  It  is  an  established 
principle  of  law,  that  in  the  absence  of  specific  agreement 
between  partners  as  to  the  distributim  of  profits  and  losses 
they  shall  he  shared  equally  regardless  of  the  capital  in^ 
vested.  If  Laahre  wants  two-thirds  of  the  profits  because 
he  has  two-thirds  of  the  investment,  he  should  see  that  such 
a  clause  is  stated  in  the  partnership  contract,  commonly 
known  as  the  articles  of  copartnership. 

Interest  on  Pari;ner's  Net  Capital.— It  sometimes  hap- 
pens  that  one  partner  withdraws  the  amount  of  his  profit 
at  the  close  of  the  year  while  the  other  leaves  his  in  the 
business.  This  results  in  the  latter  partner's  contributing 
more  to  the  working  capital  during  the  succeeding  year. 
To  help  correct  this  condition  of  apparent  inequality,  in- 


SPECIAL  ACCOUNTS  AND  ENTRIES  187 

terest  at  5%  or  6%  per  annum  is  credited  to  the  partners' 
accounts,  based  on  the  capital  in  the  business  during  the 
year.  This  credit  is  offset  by  a  debit  to  Loss  and  Gain 
account.  For  example,  after  posting  the  entries,  shown  in 
Illustrations  33  and  34,  A.  B.  Clay's  Capital  account  has 
a  balance  of  $1500  and  Ike  Laahre 's  of  $2500,  presumably 
on  March  1,  1918.  If  A.  B.  Clay  withdraws  the  amount 
of  his  profit,  $500,  his  capital  will  be  reduced  to  $1000. 
This  reduces  the  amount  of  capital  available  for  the  busi- 
ness, thereby  possibly  impairing  some  larger  operations  an- 
ticipated. In  order  to  discourage  such  withdrawals,  inter- 
est at  5%  is  allowed  on  capital  remaining  in  the  business 
throughout  the  year.  In  the  case  just  cited,  in  which  Clay 
has  $1000  and  Laahre  $2500  left  in  the  business  at  the  be- 
ginning of  the  year,  the  entry  for  interest  at  the  close  of 
the  year  is  as  follows: 

Loss  and  Gain 1175 

A.  B.  Clay,  Capital  a/c $50 

Ike  Laahre,  Capital  a/c 125 

Since  losses  and  gains  are  shared  equally.  Clay 's  account 
will  ultimately  be  debited  with  one-half  of  $175  or  $87.50 
as  a  result  of  the  interest  entry.  That  is,  ne  loses  $37.50 
(87.50  —  50)  as  a  result  of  the  interest  agreement.  Laahre 
gains  the  same  amount. 

Partners'  Drawing  Accounts.— A  Drawing  account  is 
kept  with  each  partner  to  serve  as  a  substitute  for  the 
Household  account  which  is  not  practical  in  partnership 
operations.  Each  one  bears  the  name  of  a  partner,  as  Mr. 
Clay's  Drawing  a/c,  Mr.  Laahre 's  Drawing  a/c.  These 
accounts  receive  all  debits  and  credits  affecting  the  part- 
ners during  the  year,  such  as  debits  for  withdrawals  of 
cash  or  produce  for  personal  or  household  use,  credits  for 
wages  or  salaries,  share  in  losses  or  gains,  etc.  At  the  close 
of  the  year  it  is  customary  to  transfer  an  equal  amount 


ii 


i 


n 


188 


FARM  ACCOUNTING 


from  each  Drawing  account  to  the  respective  Capital  ac- 
counts. This  increases  the  capital  of  the  business  and 
keeps  the  Capital  accounts  equal.  If  capital  is  invested 
two-thirds  and  one-third,  then  the  transfer  from  Drawing 
accounts  is  made  so  as  to  maintain  that  proportion.  A 
provision  should  be  made  in  the  partnership  agreement  to 
the  effect  that  no  partner  may  draw  more  than  a  specified 
amount  from  the  business  until  after  it  is  definitely  known 
what  the  net  gain  or  loss  is  for  the  period.  No  partner 
should  be  permitted  to  draw  an  amount  greater  than  his 
share  of  the  gain. 

Partnership  Legal  Difficulties.— There  are  a  great  many 
legal  difficulties  arising  in  partnership  affairs.  One  should 
not  enter  into  partnership  with  one  whose  honesty  or  in- 
tegrity he  has  the  least  reason  to  question.  The  court 
decisions  indicate  that  it  is  possible  for  one  partner  to 
incur  debts  for  the  partnership  which  the  other  partner 
might  have  to  pay.  It  is  a  principle  of  law  that  any  part- 
ner is  liable  for  all  the  debts  of  the  firm.  If  partner  **A'' 
borrows  money  in  the  name  of  the  firm  but  uses  it  for  his 
own  interests,  the  lender  may  recover  from  the  other  part- 
ner, *'B.'' 

Partnership  matters  cause  a  great  amount  of  business 
for  lawyers.  This  is  largely  due  to  the  fact  that  the  arti- 
cles of  copartnership  are  not  drawn  up  properly  in  the 
first  place.  Too  many  points  are  omitted  or  merely  touched 
without  proper  elucidation.  Some  points  that  ought  to  be 
included  in  the  partnership  written  agreement,  in  order  to 
avoid  unpleasant  arguments  later,  are  given  below. 

1.  Specify  what  each  is  to  contribute  in  value,  naming 
specific  articles  of  equipment,  livestock,  etc. 

2.  Duties  of  each— whether  all  time  is  to  be  spent  in 
farming  operations — whether  one  is  to  have  full  powers 
in  handling  swine  or  beef  cattle  while  another  one  has 


SPECIAL  ACCOUNTS  AND  ENTRIES 


189 


full  powers  in  raising  of  products  and  so  on.    Also  whether 
either  is  to  draw  a  salary  and  if  so,  how  much. 

3.  The  amount  which  each  may  withdraw  for  personal 
use  during  a  year  without  being  charged  with  interest  on 
such  withdrawal. 

4.  Whether  or  not  interest  is  to  be  credited  on  the  net 
capital  of  each  partner  during  the  year. 

5.  In  the  case  of  interest  charged  on  withdrawals  or 
credited  on  net  capital  it  should  be  specifically  stated  that 
all  entries  pertaining  to  interest  should  pass  through  Loss 
and  Gain  account.  That  is,  if  '*A'Ms  charged  with  inter- 
est on  money  withdrawn,  the  offsetting  credit  should  be  to 
Loss  and  Gain  account.  Likewise  if  '*A''  is  credited  with 
interest  on  net  capital  the  offsetting  debit  should  be  to  Loss 
and  Gain  account. 

6.  The  conditions  under  which  a  partner  may  reduce  or 
increase  his  capital  otherwise  than  by  the  natural  decrease 
or  increase  arising  from  loss  or  gain  in  business  operations. 

7.  The  sharing  of  profits,  (a)  whether  to  be  shared  in 
proportion  to  investment  or  otherwise,  (b)  whether  cash 
in  amount  equal  to  the  profits  of  the  year  must  be  with- 
drawn from  the  business. 

8.  In  case  the  family  of  one  of  the  partners  lives  in  the 
farm  house  but  the  other  partner  is  unmarried,  or  lives 
away  from  the  farm  house,  the  articles  of  copartnership 
should  specify  just  what  charge  is  to  be  made  to  the  part- 
ner occupying  the  house  and  using  farm  products. 

9.  If  one  partner  contributes  land,  buildings  and  equip- 
ment without  doing  any  work  and  the  other  one  supplies 
all  labor,  sharing  profits  in  some  proportion  usually  other 
than  half  and  half,  specific  arrangement  should  be  made 
for  determining  what  the  laborers  should  do.  For  exam- 
ple, the  partner  owning  the  buildings  might  want  the  la- 
borers retained  in  a  slack  time  to  assist  in  erecting  a  new 
building,  a  new  fence  or  in  tilling  a  field.    The  partner 


I 


if  • 


ii 


i; 


190 


FARM  ACCOUNTING 


I 


-1 


I 


paying  for  the  labor  might  refuse  to  pay  the  laborers  for 
that  class  of  work  on  the  ground  that  he  was  to  pay  only 
the  wages  necessary  to  operate  the  farm,  and  not  for  the 
purpose  of  adding  to  the  wealth  of  the  first  partner. 

10.  Tlie  period  of  the  partnership  should  be  definitely 
stated  and  the  terms  of  dissolution — whether  each  is  to 
take  the  specific  equipment  and  livestock  he  invested  as 
far  as  practicable,  or  whether  he  is  to  take  an  equivalent 
value  regardless  of  the  units  of  property.  Provision  for 
renewal  of  agreement  might  be  made. 

11.  If  one  partner,  an  expert  in  his  line,  is  to  receive  a 
commission  based  on  the  "profit"  from  beef  cattle,  for 
example,  the  articles  of  copartnership  should  define  the 
word  ''profit"  stating  whether  it  is  to  be  determined  after 
considering  all  charges  for  feed,  labor,  depreciation  of 
equipment,  proportion  of  general  expense,  interest  on  in- 
vestment and  so  on  as  calculated  under  the  cost  system, 
or  whether  it  merely  means  selling  price  minus  a  fair  es- 
timate of  time  and  feed  used. 

12.  It  is  advisable  for  the  articles  of  copartnership  to 
state  what  system  of  accounting  shall  be  Hsed — ^whether  or 
not  cost  records  are  to  be  employed. 

Dissolution  of  Partnership. — In  dissolving  a  partnership 
the  resources  are  divided  in  proportion  to  the  capital  ac- 
counts, after  distributing  profits  or  losses  up  to  the  date 
of  dissolution.  Illustration  35  shows  a  trial  balance  after 
closing,  at  Feb.  28,  1917,  just  before  dissolution.  It  also 
shows  the  journal  entry  made  upon  dissolution. 

By  posting  the  entry  shown,  all  accounts  in  the  ledger 
are  closed.  The  transaction  supporting  this  entry  was 
the  distribution  of  the  physical  property,  in  such  a  way 
that  Emery  got  $2800  of  it  and  Hopkins  $1800.  It  does 
not  show  who  took  the  horses  and  cattle,  or  whether  they 
were  distributed  equally.  That  is  a  matter  of  agreement 
which  does  not  require  reflection  in  the  books.    The  entry 


SPECIAL  ACCOUNTS  AND  ENTRIES 


191 


ILLUSTRATION  35 

Entry   upon   Dissolution   of   Partnership   Prepared   from 

Trial  Balance  After  Closing 

Trial  Balance  After  Closing  Feb.  28,  1917 


Cash $2,000 

Equipment 600 

Horses 1,000 

Cattle 1,000 


$4,600 


John  Emery  Capital . . .  $2,800 
Chan  Hopkins  Capital .   1,800 


$4,600 


Entry  of  Dissolution 

John  Emery  Capital $2,800 

Chan  Hopkins  Capital 1,800 

Cash $2,000 

Equipment 600 

Horses 1,000 

Cattle 1,000 

for  closing  by  a  single  proprietor  is  exactly  similar,  ex- 
cept that  one  capital  account  is  involved  instead  of  two. 

Share  Rent. — From  the  tenant's  point  of  view,  renting 
on  shares  causes  some  modification  in  the  details  of  the 
bookkeeping  entries.  A  contract  or  lease  for  rental  on 
shares  does  not  create  a  partnership.  The  relation  between 
landlord  and  tenant  is  not  that  of  partners.  So  much 
depends  upon  the  terms  of  the  lease  that  few  rules  can 
be  given  for  the  making  of  specific  entries.  Some  leases 
contain  provisions  for  part  cash  rental  in  addition  to  a 
specified  share  of  the  gross  income  from  sales.  Leases  also 
differ  as  to  the  property  to  be  supplied  by  the  tenant,  and 
as  to  who  shall  meet  certain  classes  of  expenditure.  Leav- 
ing the  discussion  of  the  effect  of  share  rent  on  costs  for 


f  1 


i< 


192 


FARM  ACCOUNTING 


treatment  under  Rent  Distribution  in  Chapter  IX,  a  simple 
case  is  presented  here  to  indicate  the  effect  of  share  rental 
on  the  accounts  of  the  tenant. 

Effect  of  Share  Rental  on  Accounts. — Assume  for  this 
purpose  that  the  landlord  furnishes  land  and  buildings  and 
one-half  of  all  working  resources  such  as  livestock  and 
equipment.  Assume  also  that  the  tenant  pays  all  oper- 
ating expenses  except  insurance,  taxes  and  repairs  on  land 
and  buildings,  and  that  all  products  and  livestock  sold 
from  the  farm  are  divided  equally  between  landlord  and 
tenant.  With  these  conditions,  the  Capital  account,  re- 
sources and  liabilities  of  the  tenant  only  are  shown  in  the 
tenant's  ledger.  All  expenses  are  charged  to  the  appro- 
priately named  accounts  as  in  other  cases.  No  property 
of  the  landlord  is  recorded  in  the  books  of  the  tenant. 

Under  the  conditions  cited  in  the  preceding  paragraph 
assume  that  the  tenant  A  and  landlord  B  together  own 
$300  worth  of  swine  at  the  beginning  of  the  year,  that 
there  are  sold  from  the  farm  $1000  worth  during  the  year 
and  that  the  inventory  value  of  the  drove  at  the  close  of 
the  year  is  $200.  Such  conditions  would  cause  A's  Swine 
account  to  appear  as  in  Illustration  36. 

The  Swine  account  of  tenant  A  in  this  case  records 
only  one-half  each  of  the  total  value  of  the  beginning  in- 
ventory, the  sales  and  the  closing  inventory.  In  Illustra- 
tion 36,  for  example,  A's  Swine  account  is  debited  with 
$150  as  the  beginning  inventory.  It  shows  the  value  of 
swine  belonging  to  A  without  attempting  to  show  the 
value  of  swine  on  the  farm.  Similarly  the  inventory  at 
the  close  of  the  year  shows  only  one-half  the  total  value 
of  all  swine  on  the  premises.  The  sales  of  $500  recorded 
on  the  credit  side  of  the  Swine  account  in  question  repre- 
sent only  A's  share  of  the  total  income  of  $1000  from 
the  sale  of  swine  during  the  year.  As  a  result  of  these 
transactions  in  swine  during  the  year,  A's  Swine  account 


SPECIAL  ACCOUNTS  AND  ENTRIES 


193 


ILLUSTRATION  36 
Tenant's  Swine  Account  Under  Share  Rent  Method 

Svnne 


1916 

Mar.   1  Inventory $150 


1917 

Feb.  28  Net  Gain, 


450 


$600 


1917 

Feb.  28  Sales  per  cash 

journal $500 

Feb.  28  Inventory 100 


$600 


1917 

Mar.    1  Inventory $100 


shows  a  net  gain  of  $450  to  be  transferred  to  the  Loss  and 
Gain  account. 

This  gain  is  not  the  gain  resulting  from  the  raising  of 
swine  on  this  particular  farm.  It  is  only  A*s  share  of 
the  gain.  Likewise  the  net  gain  or  loss  shown  by  the  Loss 
and  Gain  account  reflects  only  A's  loss  or  gain  and  does 
not  show  what  result  is  obtained  from  the  operation  of 
the  farm  as  a  whole. 

No  Rent  account  is  used  under  the  principles  described 
above.  The  rent  for  a  given  year  is  equal  to  the  gross 
income  from  the  productive  elements  as  shown  by  their 
accounts. 

Inventory  Record  in  Share  Rental. — Although  **A's" 
accounts  are  affected  only  by  his  share  in  the  operations, 
under  share  rental,  the  inventory  record  shows  all  the 
property  on  the  farm,  just  as  it  does  under  any  other 
conditions.  This  enables  a  better  check  to  be  maintained 
on  the  various  units  of  property,  and  affords  a  means  of 
determining  the  total  value  of  the  possessions  of  landlord 
and  tenant.    When  inventory  values  are  recorded  in  the 


>i 


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194 


FARM  ACCOUNTING 


ledger  of  A,  only  his  share  of  the  total  value  of  the  several 
classes  of  property  is  used. 

Cash  Rent.^ — There  are  few  of  the  share  rent  accounting 
difficulties  that  arise  when  a  tenant  pays  rent  wholly  in 
cash.  Under  the  cash  rent  method  of  operation,  the  tenant 
charges  Rent  account  with  the  stipulated  amount  of  rent 
for  the  year.  The  corresponding  credit  is  to  cash  or  the 
proprietor's  personal  account  or  Notes  Payahle  account 
depending  on  the  method  of  payment,  or  whether  pay- 
ment is  completed  before  the  close  of  the  year. 

Operation  af  More  Than  One  Farm.— The  farmer  who 
owns  and  operates  more  than  one  farm  should  attempt  to 
keep  a  separate  set  of  accounts  and  records  for  each  farm. 
He  should  make  arrangements  to  have  them  kept  on  the 
same  basis  as  far  as  possible.  This  uniform  basis  permits 
comparative  statements  to  be  made  at  the  close  of  the  year 
presenting  the  relative  operating  results  of  each  farm. 
The  details  of  operation  can  not  be  worked  out  without 
first  giving  due  consideration  to  the  operating  conditions. 
If  horses  and  equipment  are  kept  on  one  of  the  farms  to 
operate  the  others,  and  all  are  under  one  management,  it 
does  not  pay  to  consider  the  farms  as  separate  operating 
units.  They  should  be  considered  as  one  farm.  When 
the  several  farms  are  operated  by  different  managers  and 
each  farm  is  a  complete  operating  unit  in  itself,  each  one 
should  have  accounts  of  its  own. 

The  owner  of  such  farms  keeps  a  private  ledger,  and 
cash  journal  or  similar  records,  into  which  he  carries  the 
net  profit  from  each  of  the  several  farms  after  it  has  been 
determined  at  the  close  of  the  fiscal  year. 

Form  of  Increased  or  Decreased  Wealth.— In  addition 
to  the  Loss  and  Gain  Statement  and  Statement  of  Re- 
sources and  Liabilities,  there  is  a  statement  sometimes  pre- 
pared at  the  close  of  a  fiscal  year  showing  the  form  as- 
*  See  also  Kent  Distribution,  Chapter  IX. 


SPECIAL  ACCOUNTS  AND  ENTRIES 


195 


sumed  by  the  increased  or  decreased  wealth.  It  shows 
what  has  become  of  the  profits  or  what  resources  and  lia- 
bilities the  losses  affected.  This  statement,  which  contains 
four  money  columns,  is  called  the  Change  of  Wealth  State- 
ment. It  indicates  in  the  first  two  columns  the  resources 
and  liabilities  at  the  beginning  of  the  year  and  at  the 
close.  These  amounts  are  used  as  a  basis  for  calculating 
the  amounts  in  the  third  and  fourth  columns  showing  the 
increase  or  decrease  in  each  kind  of  resource  and  liability. 

An  example  showing  the  form  and  characteristics  of 
this  statement  is  presented  in  Illustration  37. 

From  a  perusal  of  the  statement  one  finds  that  Mr.  Bart- 
lett's  gain  for  the  year  ended  Feb.  28,  1917,  was  $1123.40. 
As  previously  learned,  this  means  that  the  resources  have 
increased  or  the  liabilities  decreased  that  much  during  the 
year;  or  some  equivalent  combination  of  increases  and  de- 
creases of  resources  or  liabilities  has  taken  place.  It  is 
usually  the  latter,  but  one  cannot  tell  which  it  is  from 
the  loss  and  gain  balance  as  found  in  the  Loss  and  Gain 
Statement.  The  Change  of  Wealth  Statement  analyzes 
the  changes. 

The  Summary  and  Proof  show  that  some  resources  have 
been  increased  by  $420,  others  decreased  by  $296.60,  leav- 
ing a  net  increase  in  resources  of  $123.40.  If  a  man's  net 
earnings  are  $1123.40  during  a  year,  while  he  has  only 
$123.40  more  in  property  at  the  close  of  the  year,  it  fol- 
lows that  the  remaining  amount  must  have  gone  to  reduce 
his  liabilities  to  outsiders.  This  is  exactly  the  result  in- 
dicated by  the  Summary  and  Proof  in  Illustration  37. 

If  it  is  desired  to  look  further,  to  find  out  just  what  re- 
sources decreased  or  increased  during  the  year  or  what 
liabilities  decreased,  the  information  can  be  found  in  the 
"increase'^  and  *' decrease"  columns  of  the  Change  of 
Wealth  Statement. 

These  increases  and  decreases  should  not  he  misinter- 


! 


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196 


PARM  ACCOUNTING 


ILLUSTRATION  37 

Change  of  Wealth  Statement 
Year  Ended  Feb.  28,  1917— J.  A.  Bartlett 

Resources 

Feb.  29, 1916  Feb.  28, 1917    Increase     Decrease 

Cash $500.00  $343.40                            $156.60 

Horses 2,200.00  2,160.00                               40.00 

Cattle 1,000.00  1,020.00           $20.00 

Swine 600.00  600.00 

Com 800.00  900.00  100.00 

Oats 300.00  250.00  50.00 

Equipment...        600.00  550.00  50.00 

Hay 300.00  300.00 


$6,000.00    $6,123.40    $420.00   $296.60 


Liabilities 

Mtge  Payable.   $2,000.00   *     $1,000.00 
J.  A.  Bartlett 
Cap.  a/c...     4,000.00  5,123.40       $1,123.40 


$1,000.00 


$6,000.00         $6,123.40       $1,123.40  $1,000.00 


•  Summary  and  Proof 

Increase  in  resources $420.00 

Less  decrease  in  resources 296  60 

Net  increase  in  resources $123 .  40 

Add  decrease  in  liabilities  to  outsiders 1,000 .  00 

Increase  in  liabilities  to  the  proprietor,  being  the 
net  gain  for  the  year  as  transferred  from  Loss  and 

Gain  account , $1,123.40 


SPECIAL  ACCOUNTS  AND  ENTRIES  197 

preted  to  mean  that  the  respective  branches  of  operation 
have  caused  losses  or  gains  represented  by  their  increase  or 
decrease  in  value.  For  example,  oats  show  a  decrease  of 
$50  in  Illustration  37.  This  means  that  Mr.  Bartlett  had 
$50  worth  less  oats  at  the  close  of  the  year  than  at  the 
beginning.  It  is  the  difference  in  inventories  on  the  two 
dates.  During  the  year  he  might  have  harvested  2000 
bushels  but  sold  most  of  them  at  a  profit  of  $500,  leaving 
less  on  hand  than  at  the  beginning. 

A  comparison  of  the  Change  of  Wealth  Statement  with 
the  principles  presented  in  pages  5  and  6  under  the  title 
*' Comparison  of  Statements"  will  tend  to  indicate  ths 
similarity  of  principles  involved. 

Profit  as  Farmer  and  as  Individual.— /S^mce  the  books  of 
the  farmer  include  household  expenses  and  all  personal 
items  of  expense  or  income  under  the  title  ''Household'' 
account,  it  is  necessary  to  prepare  a  brief  supplementary 
statement  in  order  to  show  the  net  results  for  the  year 
from  the  farm  and  also  the  net  gain  or  loss  as  an  individual. 
Such  a  statement  is  called  a  Farm  and  Individual  Income 
Statement. 

Illustration  38  presents  a  statement  of  the  type  just  men- 
tioned. 

ILLUSTRATION  38 

Farm  and  iNDivmuAL  Income  Statement 
(Household  Account  Showing  a  Loss)  Year  Ended  Feb.  28, 1917 

C.  E.  Righior 
Net  Gain  as  an  individual,  as  per  Loss  and  Gain  account      $700 .  00 
Add  Household  Expense,  as  per  Loss  and  Gain  account        800 .  00 


Net  Gain  as  a  farmer $1,500.00 


The  figures  used  in  deriving  the  $700  are  the  same  ones 
that  are  found  in  Mr.  Rightor's  Loss  and  Gain  account  at 


J 


198 


FARM  ACCOUNTING 


the  close  of  the  year.  The  Loss  and  Gain  account  in  the 
ledger  must  contain  as  a  debit  item  any  net  expenses  trans- 
ferred from  Household  account  in  order  to  keep  the  ledger 
in  balance,  and  to  show  the  expenses  of  all  kinds  on  the 
premises.  In  the  case  at  hand  he  made  $1500  as  a  farmer, 
but  his  personal  and  household  net  expenses  amounted  to 
$800  during  the  year,  leaving  him  only  $700  better  off  as  an 
individual  at  the  close  than  at  the  beginning  of  the  year. 

It  sometimes  happens  that  the  household  account  shows 
a  credit  balance  after  considering  inventory,  due  to  the 
fact  that  the  Household  is  credited  for  the  value  of  labor 
of  the  proprietor  and  other  members  of  the  family,  which 
credit  exceeds  the  charges  to  the  Household  for  farm 
products,  groceries  and  other  living  expenses.  In  such  a 
case,  the  Farm  and  Individual  Income  Statement  appears 
in  the  form  shown  in  Illustration  39. 

ILLUSTRATION  39 

Farm  and  iNDivrouAL  Income  Statement 
(Household  Account  Showing  a  Gain)  Year  Ended  Feb.  28, 1917 


Wm.  E.  Thompson 

Net  Gain  as  an  individual,  as  per  Loss  and  Gain  account 
Less  Household  credit  balance 


$500.00 
200.00 


Net  Gain  as  a  farmer $300.00 


The  statement  of  Illustration  39  indicates  that  Mr. 
Thompson's  Loss  and  Gain  account  showed  a  gain  of  $500. 
On  the  credit  side  of  the  Loss  and  Gain  account  there  was 
apparently  an  item  of  $200  transferred  from  Household 
account.  The  $500  balance,  therefore,  was  not  the  true 
gain  of  the  farm.  The  household  had  ** donated"  $200 
worth  of  services,  board  and  other  values  over  the  cost  of 


SPECIAL  ACCOUNTS  AND  ENTRIES 


199 


maintaining  the  household.     Deducting  this  so-called  do- 
nation leaves  $300  as  the  income  from  the  farm  proper. 

Conditions  arise  occasionally  which  result  in  a  greater 
credit  balance  in  Household  account  than  the  total  gain 
shown  by  the  Loss  and  Gain  account.  Under  such  condi- 
tions the  statement  would  be  presented  as  in  Illustration 
40,  with  the  farming  operations  showing  a  loss. 

ILLUSTRATION  40 

Farm  and  Individual  Income  Statement 

(Household  Gain  More  than  Individual  Gain) 

Year  Ended  Feb.  28,  1917 

Fred  TrumbvU 

Household  credit  balance  as  per  Loss  and  Gain  account      $360.00 
Less  Net  Gain  as  an  individual  as  per  Loss  and  Gain 

accoxmt •. 100 .  00 


Net  Loss  as  a  farmer $260.00 


The  figures  presented  in  Illustration  40  show  that  Mr. 
Trumbull's  Loss  and  Gain  account  had  a  credit  balance  of 
$100,  indicating  a  gain  of  that  amount  as  an  individual. 
This  was  obtained  after  considering  as  a  gain  the  $360 
"donated"  by  the  household  in  excess  of  the  cost  of  oper- 
ating the  household.  Accordingly,  the  operations  of  the 
farm  show  a  loss  of  $260  for  the  year. 


ILLUSTRATIVE  PROBLEMS 


1.  J.  W.  Warner,  a  tenant  farmer,  decides  to  keep  a  double  en- 
try set  of  accounts  beginning  March  1,  1917,  using  a  cash 
journal  and  ledger.  He  also  keeps  an  inventory  record,  but  no 
entries  need  be  made  in  it  by  the  student,  thus  reducing  the 
details  of  the  problem.     Special  cash-journal  columns  are  as 


41 


200 


FARM  ACCOUNTING 


follows:  Hoasehold  Dr.,  Cash  Dr.,  Sundry  Dr.,  Sundry  Cr.,  Cash 
Cr. 

He  values  his  possessions  at  that  time  and  finds  them  to  con- 
sist of  the  following:  Equipment,  $800;  horses,  $750;  cattle, 
$230;  hogs,  $480;  corn,  $1260;  oats,  $333;  rye,  $93;  hay,  $256; 
straw,  $225;  a  note  signed  by  J.  M.  Walsh  for  $150;  lot  2, 
block  6,  original  town  of  Sumter,  $1400;  3  shares  of  stock  in 
the  Home  Telephone  Co.,  at  $92  a  share;  and  cash  on  hand 
and  in  the  bank,  $320.  He  owes  $500  on  a  note  in  favor  of  the 
Norton  Farm  Machinery  Company,  and  $20  to  James  White  for 
wages. 

Make  the  n(?eessary  entries  for  the  opening  of  the  books  and 
also  for  the  interpretation  of  the  following  transactions  in  the 
books. 

9 

Note.— Debit  Home  Telephone  Co.  Stock  and  Lot  2,  Block  6, 
Town  of  Sumter  accounts,  with  the  value  of  these  respective 
properties. 

March  17.  Paid  cash  for  repairs  to  machinery  $6. 
March  20.  Paid  Norton  Machinery  Company  $250  on  account 
of  note. 

March  20.  A  contract  is  made  whereby  thirty  acres  of  sugar 
beets  soon  to  be  planted  are  to  be  sold  to  Johns  &  Jordan  at 
$8  a  ton  when  harvested.  Johns  &  Jordan  are  to  furnish  all 
the  labor  for  cultivating  and  harvesting  the  beets  and  deduct  $15 
per  acre  for  such  services  from  the  value  of  the  beets  at  time  of 
settlement. 

March  21.  Paid  taxes  on  lot  2,  block  6,  $8.46;  and  personal 
property  taxes,  $25.10.     (Debit  General  Expense  $33.56.) 

March  24.  Sold  some  hay  for  $105  cash. 

April  19.  Paid  special  assessment  tax  on  lot  2,  block  6,  for 
paving  the  street,  $5.30.  (This  is  considered  as  increasing  the 
value  of  the  lot.) 

April  20.  Paid  James  White,  $20. 

May  1.  Received  cash  from  J.  M.  Walsh  to  redeem  his  note, 
and  to  pay  $2.25  interest  thereon. 

May  31.  Paid  for  labor,  $25.50. 

May  31.  Sold  some  corn  for  $260  cash. 

June  25.  Sold  some  rye  for  $69  cash. 


SPECIAL  ACCOUNTS  AND  ENTRIES 


201 


June  26.  Paid  Norton  Machinery  Company  balance  due  on 
note  and  $9.20  interest. 

June  27.  Horse,  Dexter,  killed  by  lightning,  valued  at  $125. 

June  30.  Sold  dairy  products  for  cash  during  the  month,  $27.50. 

June  30.  The  household  consumed  dairy  products,  during  the 
four  months,  valued  at  $28.60. 

July  8.  Paid  for  labor  $21.40. 

Aug.  18.  Paid  $10  exhibit  fee  for  fruits  and  crops  at  County 
Fair. 

Aug.  31.  Paid  cash  for  household  supplies  $25  and  clothing 

Aug.  31.  Paid  for  sundry  repairs  to  equipment  $19.40. 

Aug.  31.  Received  $15  in  prizes  at  County  Fair. 

Sept.  10.  Paid  for  labor  $24. 
#Oct.  10.  Delivered  200  tons  of  sugar  beets  to  Johnc  &  Jordan 
under  contract  of  March  20. 

Oct.  19.  Sold  some  hogs  for  $116  cash. 

Oct.  19.  Delivered  100  tons  of  sugar  beets  to  Johns  &  Jor- 
dan. 

Oct.  31.  The  household  consumed  dairy  products  during  the 
four  months,  valued  at  $35.35. 

Nov.  1.  Received  a  check  from  Johns  &  Jordan  in  full  of 
account. 

Nov.  9.  Traded  black  mare,  Bess,  for  bay  mare,  Queen,  and 
received  $20  to  boot.     (Dr.  Cash,  Cr.  Horses  for  $20.) 

Dec.  19.  Paid  $45  for  sundry  household  commodities. 

Jan.  16,  1917.  Sold  some  com  for  $640  cash. 

Jan.  18.  Paid  for  labor,  $45. 

Feb.  10.  Leased  a  smaller  farm  for  next  year.  The  auction 
sale  held  today  resulted  in  the  sale  of  some  of  the  equipment 
for  $150,  at  a  loss  of  $75  on  the  inventory  valuation;  one  horse 
for  $100  at  a  loss  of  $25 ;  10  hogs  for  $200,  a  fair  market  price ; 
some  corn  for  $150,  market  price;  and  rye  for  $125,  market 
price.  All  of  the  sales  were  for  cash  except  the  hogs  which 
were  sold  to  John  Logan  in  exchange  for  his  90-day  promissory 
note  bearing  5%  interest.  The  expenses  of  the  sale  amounted 
to  $35,  which  were  paid  in  cash.  (The  latter  is  a  charge  to  the 
Loss  oti  Auction  Sale  account.) 


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FARM  ACCOUNTING 


Feb.  14.  Buggy  shed  burned,  in  which  $300  worth  of  equip- 
ment was  rendered  useless.  (Building  loss  does  not  affect  the 
tenant.) 

Feb.  18.  Sold  remnants  of  the  equipment  damaged  bv  fire  for 
$30  cash. 

Feb.  28.  Received  a  check  from  the  insurance  company  for 
$250  to  reimburse  for  damage  from  the  fire  of  Feb.  14. 

Feb.  28.  Paid  rent  for  the  year  in  cash,  $550. 

Feb.  28.  The  inventory  taken  at  this  date  was  valued  as  fol- 
lows: Equipment,  $295;  horses,  $530;  cattle,  $270;  hogs,  $545; 
corn,  $1030;  oats,  $300;  hay,  $190;  and  straw,  $225. 

(a)  Post  all  entries  to  the  ledger,  including  totals  of  all  but 
the  Sundry  columns. 

(b)  Take  off  a  trial  balance  before  considering  inventories. 

(c)  Considering  inventories,  prepare  a  Loss  and  Gain  ac- 
count, close  its  balance  into  Capital  account  and  rule  off  the 
accounts,  bringing  down  inventories  below  the  rulings. 

(d)  Prepare  a  trial  balance  after  closing,  which  may  be  con- 
sidered also  as  a  Statement  of  Resources  and  Liabilities,  as  at 
Feb.  28,  1918. 

(e)  Prepare  a  Farm  and  Individual  Income  Statement  for  the 
year  ended  Feb.  28,  1918. 

(f )  Prepare  a  Change  of  Wealth  Statement  at  Feb.  28,  1918. 

2.  On  Jan.  1,  1917,  Frank  Anderson  took  a  complete  inven- 
tory of  his  farm  and  found  he  had  the  following,  which  are  to 
be  entered  in  the  comparative  inventory  record  except  land, 
buildings,  notes  receivable,  etc.:  194  A.  of  land  valued  at 
$19,400;  dwelling,  $2500;  tenant  house,  $1000;  1  new  bam, 
$1000;  1  old  bam,  $200;  1  poultry  house,  $80;  1  smoke  house. 
$40;  1  wood  shed,  $10;  150  bu.  wheat  at  $1.70;  600  bu.  oats 
at  $0.50;  100  bu.  com  at  $1.20^  55  T.  clover  and  timothy 
hay  in  bam  at  $12;  15  T.  clover  and  timothy  hay  in  stack  at 
$12;  7  T.  oats  straw  at  $6;  10  T.  wheat  straw  at  $1.50;  1 
grain  binder,  $70;  1  cultivator,  $24;  2  walking  plows  at  $5  each; 
1  com  planter,  $24;  1  cultivator,  $15;  1  mower,  $20;  1  riding 
plow,  $18;  1  riding  plow,  $22;  1  steel  roller,  $16;  1  broadcast 
grass  seeder,  $1;  1  old  sulky  rake,  $1;  1  double  harpoon  fork, 
rope,  etc.,  $7;  2-6"  Diamond  plows,  $2.50;  1  manure  spreader, 


SPECIAL  ACCOUNTS  AND  ENTRIES 


203 


$40;  1  harrow,  $1;  1  14-disc  harrow  with  tmck,  $12;  1  2-sec. 
steel  spike-tooth  harrow,  $5;  2  double  shovel  plows,  $2.50;  dairy 
tools,  $7;  1  wagon,  $10;  1  road  cart,  $10;  1  wagon,  $25;  1  car- 
riage, $50;  1  single  top  buggy,  $40;  1  four-cylinder  automo- 
bile, $400;  1  feed  grinder,  $12;  miscellaneous  equipment,  $15; 
1  Fairbanks  stock  and  wagon  scales,  $25;  1  road  drag,  $1;  1 
lawn  mower,  $4.50;  1  wheelbarrow,  $1;  1  small  galvanized  tank, 
$1.50;  1  pr.  dehoming  clippers,  $3.50;  3  sets  double  work  har- 
ness, $45;  1  set  double  carriage  harness,  $18;  2  sets  single  buggy 
harness,  $18;  2  saddles,  $18;  robes  and  dusters,  $2;  halters,  $12; 
fencing  tools,  $2;  garden  tools,  $4;  ditching  tools,  $0.75;  barn 
tools,  $7;  shop  and  repair  tools,  $10;  miscellaneous  tools,  $10 
8  head  horses  $1165  and  6  head  mules,  $810 ;  15  head  cattle,  $585 
35  hogs,  $580;  70  chickens,  $50;  60  T.  ground  limestone,  $120 
miscellaneous  supplies,  $2  (Charge  General  Expense) ;  notes  re- 
ceivable, $465;  (John  Pals'  note  without  interest  due  March  1, 
1917) ; 

His  liabilities  were  as  follows:  6%  mortgage,  $4000  interest 
payable  Jan.  1^  and  July  1;  note  payable  without  interest  to 
Jake  Dillon,  $100;  owing  to  Johnson  Bros,  on  account,  $25. 

He  decides  to  keep  a  double  entry  set  of  books.  Determine 
his  present  worth  and  open  his  books,  using  cash  journal,  ledger, 
and  comparative  inventory  record.  Cash  joumal  columns  are: 
debits :  Frank  Anderson  Drawing,  Fred  Anderson  Drawing,  Cash 
and  Sundry;  credits:  Sundry  and  Cash. 

His  transactions  are  as  follows: 

Jan.  1.  Fred  Anderson,  the  proprietor's  married  son,  who  has 
saved  some  money  while  working  in  the  city  enters  into  partner- 
ship with  his  father  for  the  term  of  one  year  from  today.  The 
terms  of  the  copartnership  agreement  contain  among  others  the 
following  provisions: 

(a)  Fred  is  to  invest  $1000  in  cash, 

(b)  He  is  to  rent  the  tenant  house  and  garden  plot  for  $60 
for  the  term  of  one  year,  said  rental  to  be  an  income  of  the 
elder  Anderson  and  not  of  the  business. 

*  Frank  Anderson  has  given  his  personal  check  to  pay  the  interest 
due  today  (January  1),  so  it  is  not  necessary  to  consider  interest  in 
the  entry  made  at  this  time. 


204 


FARM  ACCOUNTING 


I 


I 


(c)  Before  distributing  the  gain  or  loss  for  the  year,  an  entry 
is  to  be  made  debiting  Loss  and  Gain  and  crediting  the  Part- 
ners' Drawing  accounts  with  5%  interest  on  the  respective  in- 
vestments of  the  two  partners. 

(d)  Labot  account  is  to  be  debited  and  each  partner  credited 
in  his  drawing  account  at  the  close  of  the  year  with  $600  for 
labor  during  the  year. 

(e)  Each  partner  may  draw  from  the  business  for  private 
use,  cash  or  produce  to  the  value  of  $600  during  the  year. 

(f)  Either  partner  drawing  more  than  $600  in  cash  and  pro- 
duce the  year  shall  be  charged  with  5%  interest  for  the  elapsed 
time  on  the  excess  withdrawals.  Loss  and  Gain  being  credited. 

(g)  Depreciation  at  5%  per  annum  shall  be  charged  to  Loss 
and  Gain  account  on  all  buildings  and  10%  on  all  equipment 
before  distribution  of  profits. 

Note, — The  terms  of  the  copartnership  agreement  as  given 
above  do  not  require  an  entry  until  transactions  are  stated. 

Jan.  1.  Fred  Anderson  invests  $1000  cash  in  the  business  ac- 
cording to  the  terms  of  the  partnership  contract. 

Jan.  3.  There  was  sold  to  the  Jones  Elevator  Co.  on  account, 
75  bu.  wheat  at  $1.70. 

Jan.  10.  Sold  for  cash  5  T.  oats  straw  at  $6. 

Jan.  20.  Frank  Anderson  withdrew  cash  for  life  insurance, 
$34.82. 

Jan.  25.  Received  a  check  from  the  Jones  Elevator  Co.  for 
wheat  sold  them  on  the  3rd. 

Feb.  3.  Sold  to  Sam'l  McNulty  on  account  15  hogs  for  $300. 

Feb.  6.  Each  of  the  partners  withdrew  $30  for  personal  use. 

Feb.  24.  Sold  to  Andrews  &  Johnson  on  account  oats,  $150. 

Mar.  1.  Received  $465  from  John  Pals  to  redeem  note  due 
today. 

Mar.  15.  Sold  to  Jones  Elevator  Co.,  on  account  75  bu.  wheat 
at  $1.75. 

Mar.  18.  Sold  for  cash  1  T.  oats  straw  at  $6.50. 

Apr.  5.  Frank  Anderson  used  dairy  products  valued  at  $25 
and  eggs  and  poultry  valued  at  $10  during  the  first  three  months, 
while  Fred's  family  used  dairy  products  valued  at  $20  and  eggs 
and  poultry  valued  at  $5.     (Debit  the  Drawing  accounts.) 


SPECIAL  ACCOUNTS  AND  ENTRIES 


205 


Apr.  28.  Received  from  Sam'l  McNulty  check  for  $200  to 
apply  on  account. 

May  1.  Fred  paid  his  father  $30  to  apply  on  rent  of  tenant 
house  (no  entry  is  made  for  thi*,  since  it  is  a  side  transaction, 
not  affecting  the  cash  of  the  business). 

May  15.  A  new  cultivator  is  bought  of  Anson  &  Co.  for  $35 
cash. 

May  20.  Paid  for  repairs  on  mower,  $5. 

May  25.  Paid  Johnson  Bros.  $25  in  full  of  account. 

May  28.  Frank  withdrew  $100  for  private  use  and  Fred  $80. 

June  7.  Received  a  check  from  Andrews  &  Johnson  in  full 
of  account. 

June  12.  Received  check  from  the  Jones  Elevator  Co.  in  full 
of  account. 

June  18.  Paid  a  note  owing  to  Jake  Dillon,  $100. 

June  30.  During  the  past  three  months,  Frank's  family  has 
used  dairy  products,  $30;  poultry  products,  $10;  garden  truck, 
$10.  Fred's  family  has  used  dairy  products  $25;  poultry  prod- 
ucts, $12,  and  garden  truck,  $8. 

July  1.  Paid  $120  interest  on  mortgage,  and  $1000  on  the 
principal. 

July  30.  Frank  withdrew  $75  for  personal  use  and  Fred  $50. 

July  31.  Paid  wages  in  cash,  $46.50. 

Aug.  18.  Sold  for  cash  200  bu.  wheat  at  $2. 

Aug.  25.  Sold  58  T.  Ijay  at  $15  to  Alberts  and  Casey  on  ac- 
count. 

Aug.  28.  Bought  a  farm  tractor  for  $300  cash. 

Sept.  3.  Received  check  from  Alberts  and  Casey  for  $400  to 
apply  on  account,  and  a  60-day  6%  note  for  $470. 

Sept.  30.  Frank's  family  used  during  the  last  three  months 
dairy  products  valued  at  $20,  and  poultry  products,  $7;  Fred's 
family  used  dairy  products,  $13,  and  poultry  products,  $8. 

Sept.  30.  Frank  withdrew  $250  for  private  use  and  Fred  with- 
drew $100. 

Oct.  28.  Sold  to  the  Jones  Elevator  Co.  for  cash  200  bu.  com 
at  $1.25. 

Nov.  2.  Received  check  from  Alberts  and  Casey  for  $474,70 
for  note  and  interest  due  today. 


li.  M 


I 


206 


FARM  ACCOUNTING 


4 


Nov.  6.  Sold  for  cash  50  tons  of  hay  at  $13. 
Nov.  25.  Sold  some  hogs  for  $780  cash. 

Nov.  30.  Frank  withdrew  $300  for  private  use  and  Fred  with- 
drew $50. 

Dec.  12.  Paid  carpenters  for  addition  to  barn,  $390. 

Dec.  16.  Fred  paid  the  balance  of  $30  rent  on  tenant  house. 
(Same  as  transaction  of  May  1.) 

Dec.  31.  Frank^s  household  used  during  the  last  three  months 
dairy  products  valued  at  $30  and  poultry  products  valued  at  $15. 
Fred's  household  used  dairy  products  valued  at  $20  and  poultry 
products  valued  at  $15. 

Dec.  31.  (a)  Post  all  entries  to  the  ledger,  including  totals  of 
all  but  the  Sundry  columns. 

(b)  Make  the  calculations  and  entries  necessary  to  carry  out 
the  provisions  of  the  copartnership  agreement  which  have  been 
designated  in  this  problem  under  date  of  Jan.  1  as  (c),  (d), 
(f)  and  (g). 

(c)  Post  the  entries  made  under  (b)  above. 

(d)  Take  off  a  trial  balance  before  considering  inventories. 

(e)  Make  the  proper  entries  in  the  Comparative  Inventory 
Record,  considering  the  following  facts: 

All  items  of  equipment  on  hand  at  the  beginning  of  the  year 
were  on  hand  at  the  close.  In  addition,  any  new  equipment 
bought  during  the  year  is  to  be  considered. 

Products  on  hand  were  as  follows:  Wheat,  200  bu.  at  $1.60; 
oats,  500  bu.  at  $0.50;  com,  200  bu.  at  $1.10;  timothy  hay,  20 
tons,  at  $10;  oats  straw,  10  tons  at  $6;  wheat  straw,  10  tons  at  $2. 

Livestock  inventory  was  as  follows:  Horses,  9  head,  $1230; 
mules,  6  head,  $810;  cattle,  17  head,  $660;  30  hogs,  $480;  90 
chickens,  $65.     There  were  30  tons  ground  limestone,  $60. 

(f )  Considering  inventories,  prepare  a  Loss  and  Gain  account, 
close  its  balance  into  Drawing  accounts,  and  rule  off  the  ac- 
counts, bringing  down  inventories  below  the  ruling  when  neces- 
sary. 

(g)  Prepare  a  trial  balance  after  closing  which  may  be  con- 
sidered also  as  a  Statement  of  Resources  and  Liabilities  as  of 
Dec.  31,  1917. 

(h)  Prepare  a  Change  of  Wealth  Statement  as  of  Dec.  31, 1917. 


• 


if 


.\ 


SPECIAL  ACCOUNTS  AND  ENTRIES 


207 


(i)  If  the  partnership  is  not  to  be  renewed,  and  Fred  Ander- 
son withdraws,  how  might  settlement  be  effected?  Show  the 
entry  in  simple  journal  form  that  would  be  required  to  record 
the  withdrawal  of  Fred  Anderson. 

3.  Mr.  L.  E.  Fay,  who  has  been  farming  for  several  years  as  a 
tenant,  decides  to  keep  accounts  of  his  transactions.  Accordingly, 
he  arranges  to  use  a  cash  journal  and  ledger,  beginning  with  his 
new  lease,  on  Jan.  1,  1916.  The  following  columns  are  to  be 
used  in  the  Cash  Journal  in  the  order  named : 

Debit:  Labor,  Roy  Wade,  Household,  Cash,  Sundry. 

Credit:  Sundry,  Cash,  Household,  Roy  Wade,  Poultry  and 
Cattle. 

He  valued  his  possessions  and  prepared  a  Statement  of  Re- 
sources and  Liabilities,  as  follows: 


Statement  of  Resources  and  Liabilities,  Jan.  1, 1916.  L.  E.  Fay 


Resources 

Cash 

Household  Furnishings . . 

B.  E.  Adams 

Notes    Receivable    (At- 

wood) 

Horses 

Cattle 

Hogs 

Sheep 

Poultry 

Bran,   shorts,   etc.   (Dr. 

Mill  feed) 

Com 

Oats 

Wheat 

Hay 

Equipment 


500 
60 

200 
800 
600 
350 
150 
30 

40 
500 
100 
250 
200 
1,000 


Liabilities 

Watt.  Hdw.  Co. $150 

Mortgage  Payable 2,000 

L.  E.  Fay,  Capital 3,430 


n 


$5,580 


$5,580 


208 


FARM  ACCOUNTING 


SPECIAL  ACCOUNTS  AND  ENTRIES 


209 


A 


In  order  to  reduce  the  details  of  the  problem,  the  inventory 
record  of  Mr.  Fay  is  not  to  be  used. 

MaJ^e  the  necessary  entries  in  the  book  of  original  entry  to 
open  the  books  of  Mr.  Fay;  and  then  proceed  to  record  his 
transactions  for  the  year,  as  detailed  below : 

Jan.  2.  Gave  two  promissory  notes  to  landlord  for  $250  each 

^oif^fu  ^  ^^.  y^^"'«  ^^^^^  <^"^  ^"e  Sept.  1  and  one  Dec.  15, 
:i916,  without  interest.     (Debit  Rent  account.) 

Jan.  9.  Spent  $10  for  household  supplies. 

Jan.  10.  Sold  com  for  $140  cash. 

Jan.  31.  The  household  received  during  the  month  $5  worth  of 
dairy  products  and  $1  worth  of  eggs.  (Credit  Cattle  and  Poultry 
accounts  respectively). 

Jan.  31.  Butchered,  for  household  use,  four  hogs  valued  at  $50. 

l<eb.  1.  Paid  interest  on  mortgage  for  six  months,  $60.  (Keep 
an  interest  account.) 

Feb.  11.  Bought  for  cash  two  horses  at  $150,  and  two  sets 
of  harness  at  $19.50.     (Harness  is  considered  as  equipment.) 

Feb^  16.  Received  a  60  day  note,  bearing  interest  at  6%, 
Irom  B.  E.  Adams  to  settle  his  account. 

Feb.  28.  The  household  received  during  the  month,  poultry 
valued  at  90c,  eggs  valued  at  $1.15,  and  dairy  products  valued 
at  $6. 

Mar.  4.  Sold  wheat  for  $175  cash. 

Mar.  4.  Paid  cash  for  groceries,  $6. 

Mar.  4.  Paid  personal  taxes,  $35.67. 

Mar.  31.  The  household  received  during  the  month,  poultry 
valued  at  95c,  eggs  valued  at  $1.10,  and  dairy  products  valued  at 
$0.40. 

Apr.  3.  Paid  for  repairs  to  wagon  and  corn  planter,  $2  25 
Apr    16.  Received   cash   from   B.    E.   Adams   to   redeem   his 

note  of  Feb.  16  i  and  to  pay  interest  on  same. 
Apr.  30.  The  household  received  during  the  month,   poultry 

valued  at  80c,  eggs  valued  at  90c,  and  dairy  products  valued  at 

May  1.  Arranged  with  Roy  Wade  to  work  by  the  month  until 

♦.\^°,a^f  ^*  ®"  '^*^'  *™'"  February  16,  it  should  be  remembered 
tnat  1916  was  a  leap  year. 


December  1,  for  $30  a  month  and  his  board,  room  and  laundry. 
It  is  agreed  that  he  can  draw  his  wages  in  installments  of  not 
less  than  $5  at  any  time  after  he  has  earned  them. 

May  5.  Received  cash  from  A.  M.  Atwood  for  note  due  today, 
with  interest  on  same  at  6%  per  annum  from  Dec.  5,  1915. 

May  6.  Paid  Watt  Hdw.  Co.  in  full  of  account,  $150. 

May  25.  Decided  to  discontinue  the  raising  of  sheep,  so  sold  all 
the  sheep  for  $230  cash. 

May  25.  Roy  Wade  drew  $10  on  account  of  wages. 

May  31.  Sold  part  of  the  hay  for  $95. 

May  31.  The  household  received  during  the  month,  poultry 
valued  at  70c,  eggs  valued  at  $1.30,  and  dairy  products  valued 
at  $7. 

May  31.  Credited  Roy  Wade  with  wages  for  May,  $30. 

May  31.  The  household  values  the  board,  room,  and  laundry 
of  the  hired  man  during  May,  at  $20. 

June  1.  Paid  $30  for  bran  and  shorts. 

June  8.  Roy  Wade  drew  $20  on  account. 

June  10.  Bought  sundry  supplies  for  the  house,  $16.50,  of 
which  $13  was  paid  in  cash,  $2.50  in  butter,  and  $1  in  eggs. 
(The  Household  is  credited  for  butter  and  eggs  sold  since  it  is 
debited  with  all  milk  and  eggs  produced  on  the  farm.) 

June  10.  Bought  nails,  bolts,  etc.,  for  repair  of  equipment, 
$1.15  cash. 

June  10.  Bought  a  new  hat  and  suit  of  clothes  for  $27.50 
cash. 

June  30.  The  household  received  during  the  month,  eggs  valued 
at  50c  and  dairy  products  valued  at  $5.60. 

June  30.  Credited  Roy  Wade  with  wages  for  June,  $30. 

June  30.  The  household  values  the  board,  room,  and  laundry 
of  the  hired  man  during  June  at  $20. 

July  3.  Paid  for  binder  twine  for  oats  crop,  $19.50. 

July  3.  Roy  Wade  drew  $30  on  account. 

July  4.  Spent  $7.40  for  sundry  expenses  in  town  at  holiday 
celebration. 

July  8.  Deposited  $500  in  savings  account  at  State  Trust  and 
Savings  Bank.  (Debit  State  Trust  &  Savings  Bank,  Credit 
Cash.) 


210 


FARM  ACCOUNTING 


1 

II 

i 

I 

i 

] 

I 


A 


I 


July  15.  Paid  for  extra  help  during  the  haying  season,  $9.30. 
(Dr.  Labor.) 

July  22.  Bought  groceries  for  cash,  $16. 

July  31.  The  household  received  during  the  month,  eggs  valued 
at  35c,  and  dairy  products  valued  at  $3.40. 

July  31.  Credited  Roy  Wade  with  wages  for  July,  $30. 

July  31.  The  household  values  the  board,  room,  and  laundry 
of  the  hired  man  during  July  at  $20. 

Aug.   1.  Paid  interest  on  mortgage,  $60. 

Aug.  6.  Paid  for  sundry  small  tools,  $6.30. 

Aug.  16.  Paid  for  threshing  coal  for  oats  crop,  $4.27. 

Aug.  18.  Sold  520  bushels  new  oats  at  53c  cash. 

Aug.  23.  Sold  some  com  for  $150  cash. 

Aug.  23.  Bought  groceries  for  cash,  $19.50. 

Aug.  31.  The    household    received    during    the    month,    eggs 
valued  at  60c,  and  dairy  products  valued  at  $3. 

Aug.  31.  Sold  eggs  for  90c  cash  during  August. 

Aug.  31.  Credited  Roy  Wade  with  wages  for  August,  $30. 

Aug.  31.  The  household  values  the  board,  room,  and  laundry 
of  the  hired  man  during  August  at  $20. 

Sept.  1.  Paid  $250  to  redeem  note  held  by  landlord  due 
today. 

Sept.  6.  Bought  bran,  shorts,  etc.,  for  $29  cash. 
Sept.  6.  Sold  four  calves  for  $85  cash. 
Sept.  8.  Paid  Roy  Wade  on  account,  $15. 

Sept.  15.  Paid  for  extra  help  during  threshing  season,  $4.50. 
(Debit  Labor.) 

Sept.  21.  Paid  fire  insurance  premiums,  $8.  (Dr.  General  Ex- 
pense.) 

Sept.  30.  The  household  received  during  the  month,  eggs 
valued  at  $1  and  dairy  products  valued  at  $5.10. 

Sept.  30.  Credited  Roy  Wade  with  wages  for  September,  $30. 

Sept.  30.  The  household  values  the  board,  room,  and  laundry  of 
the  hired  man  during  September  at  $20. 

Sept.  30.  Paid  Roy  Wade  on  account,  $15. 

Oct.  6.  Paid  for  winter  clothes  for  self  and  family,  $86.50. 

Oct.  10.  Bought  for  cash,  two  husking  hooks,  40c;  two  com 
knives,  60c;  and  one  wheelbarrow,  $3.     (Dr.  Equipment.) 


t 


SPECIAL  ACCOUNTS  AND  ENTRIES         211 

Oct.  -21.  Sold  for  cash,  30  shotes,  4500  lbs.  at  $13  per  cwt. 

Oct.  31.  Credited  Roy  Wade  with  wages  for  October,  $30. 

Oct.  31.  The  household  values  the  board,  room,  and  laundry  of 
the  hired  man  during  October  at  $20. 

Oct.  31.  The  household  received  during  the  month,  poultry 
valued  at  $1.25,  eggs  valued  at  $1.20,  and  dairy  products  valued  at 
$6.30. 

Nov.  6.  One  cow  valued  at  $20  died  and  was  buried  on  the 

farm. 

Nov.  20.  Sold  some  poultry  for  $16.45  cash. 

Nov.    30.  Donated    to    the   United    Charities,    $10.      (General 

Expense.) 

Nov.  30.  The  household  received  during  the  month,  poultry 
valued  at  $2,  eggs  valued  at  $1.10,  and  dairy  products  valued 
at  $5.90. 

Nov.  30.  Credited  Roy  Wade  with  wages  for  November,  $30, 
and  paid  him  $30  on  account. 

Nov.  30.  The  household  values  the  board,  room,  and  laundry 
of  the  hired  man  during  the  month  at  $20. 

Dec.  3.  Paid  cash  for  bran,  shorts,  etc.,  $26. 

Dec.  6.  Paid  for  buggy  wheel,  $5.95;  one  pair  trace  springs, 
$1;  one  wagon  tongue  support,  $1.70;  one  single  tree,  60c; 
nails,  screws  and  bolts,  70c ;  and  two  horse  blankets,  $5.90.  (All 
are  to  be  charged  to  Equipment  Expense.) 

Dec.  15.  Paid  $250  to  redeem  note  held  by  landlord  due 
today. 

Dec.  18.  Sold  some  poultry  for  $6.20  cash. 

Dec.  18.  Paid  for  incidental  Christmas  purchases,  $10.65. 

Dec.  19.  Paid  Roy  Wade  on  account,  $50. 

Dec.  31.  The  household  received  during  the  month,  poultry 
valued  at  $1.40,  eggs  valued  at  45c,  and  dairy  products  valued 

at  $4.80. 
Dec.  31.  Mr.  Fay  places  the  value  of  his  services  as  a  laborer 

at  $600  for  the  year. 

Dec.  31.  Inventories  taken  on  this  date  showed  the  following 
values:  household  furnishings,  $500;  horses,  $1100;  cattle,  $570; 
hogs,  $240;  bran,  shorts,  etc.,  $15;  oats,  $350;  corn,  $830;  hay, 


1 


ii 


212 


FARM  ACCOUNTING 


mT 


$290;  poultry,  $25.    Equipment  has  depreciated  10%  during  the 
year. 

(a)  Post  all  items  to  the  ledger,  allowing  enough  space  for 
the  transactions  of  problem  4  below  which  require  the  use  of  the 
same  ledger  accounts. 

(b)  Take  a  trial  balance  before  considering  inventories. 

(c)  Make  the  proper  entries  for  inventories. 

(d)  Prepare  a  Loss  and  Gain  account;  close  and  rule  off  the 
necessary  accounts  to  show  net  profit  in  Fay's  Capital  account. 

(e)  Take  a  trial  balance  after  closing,  which  may  also  be  used 
as  a  Statement  of  Resources  and  Liabilities. 

(f)  Prepare  a  Farm  and  Individual  Income  Statement  for 
the  year. 

(g)  Prepare  a  Change  of  Wealth  Statement  as  of  Dec.  31, 
1916. 

Note. — The  cash-journal  and  ledger  accounts  used  in  the  Fay 
problem  above  are  to  be  used  in  problem  4  below,  the  latter 
being  a  continuation  of  the  affairs  of  L.  E.  Fay  for  the  year 
ended  Dec.  31,  1917. 

Also,  the  books  and  accounts  of  problem  3  above  are  to  be 
used  later  in  a  comparative  study  and  discussion  as  outlined 
under  problem  2,  Chapters  VIII  and  IX. 

4.  You  are  to  record  in  the  cash  journal  (beginning  on  a 
new  page)  the  transactions  of  L.  E.  Fay  for  the  year  ended  Dec. 
31,  1917,  which  were  as  follows: 

Jan.  3.  Gave  two  promissory  notes  to  landlord  for  $250  each 
in  payment  of  year's  rent,  one  due  Sept.  1  and  one  Dec.  15,  1917, 
without  interest.     (Debit  Rent  account.) 

Jan.  3.  Paid  Roy  Wade  cash  to  balance  account. 

Jan.  4.  Sold  some  corn  for  $400  cash. 

Jan.  15.  Paid  $20  for  clothing. 

Jan.  30.  Butchered  a  beef  for  family  use,  $70. 

Jan.  31.  Took  savings  bank  pass  book  to  bank  and  had  in- 
terest credited  for  the  six  months  to  Jan.  1st,  $7.50.  (Debit 
State  Trust  &  Savings  Bank  and  credit  Interest.) 

Feb.  1.  Paid  interest  on  mortgage  for  six  months,  $60. 

Feb.  3.  Sold  beef  quarter  and  other  parts  of  the  animal  butch- 
ered a  few  days  ago  for  $30. 


SPECIAL  ACCOUNTS  AND  ENTRIES         213 

Mar.  1.  Sold  hogs  for  $100  cash. 

Mar.  1.  Pai-d  personal  taxes,  $39. 

Mar.  20.  Paid  for  sundry  household  supplies,  $28. 

Mar.  31.  The  household  record  shows  the  following  commodi- 
ties turned  over  to  the  house  during  January,  February  and 
March:  poultry,  $4;  eggs,  $9.20;  milk,  $22. 

Mar.  31.  During  the  three  months,  the  household  has  sold 
for  cash  part  of  the  products  as  follows :  eggs,  $4 ;  butter,  $5. 

Apr.  1.  Made  a  contract  with  Roy  Wade  similar  to  the  one 
of  last  year,  except  that  he  begins  April  1  instead  of  May  1, 
and  is  to  receive  $35  a  month  and  his  board,  room  and  laundry, 
and  the  use  of  a  horse  and  buggy.^ 

Apr.  1.  Sold  some  hay  for  $150  cash. 

Apr.  3.  Bought  millfeed  for  $30. 

Apr.  18.  Paid  for  harness  repairs  $4  (Harness  is  part  of  the 
equipment ) . 

Apr.  28.  Paid  horseshoeing  bill  of  $2. 

Apr.  30.  Credited  Roy  Wade  with  wages  for  April,  $35. 

Apr.  30.  The  household  values  the  board  of  hired  man  at  $20 
for  the  month  of  April. 

Note. — On  the  last  day  of  each  month  from  May  to  November, 
both  inclusive,  you  are  to  make  entries  for  the  $35  wages  credited 
to  Roy  Wade  and  for  the  $20  board  without  being  told  to  do  so, 
each  time. 

May  8.  Paid  Roy  Wade  $5  on  account. 

May  10.  Paid  for  sundry  repairs  to  equipment,  $8. 

June  20.  Paid  cash  for  extra  labor,  $6. 

June  25.  Paid  Roy  Wade  $7  on  account. 

June  30.  The  household  record  shows  the  following  commodi- 
ties turned  over  to  the  house  during  April,  May  and  June: 
poultry,  $6;  eggs,  $18;  milk,  $35. 

^Theoretically,  the  value  placed  on  the  use  of  the  horse  and  buggy 
would  be  debited  to  Labor  and  credited  to  Miscellaneous  Income  or 
to  General  Expense  because  this  concession  is  equivalent  to  a  recogni- 
tion that  labor  is  worth  more  than  $35  plus  $20  board.  Mr.  Fay,  how- 
ever, does  not  wish  to  consider  the  value  of  labor  as  increased  by  this 
concession. 


!  t 


!  •■ 


il 


^hf 


214 


FARM  ACCOUNTING 


June  30.  During  the  three  months,  the  household  has  sold  for 
cash    part  of  the  products  as  follows:  eggs,  $10;  butter,  $15. 

July  1.  Paid  Roy  Wade  on  account,  $10. 

July  4.  Sundry  expenses  over  the  holiday  amounted  to  $3.10. 

July  5.  Paid  cash  for  binder  twine  for  20  acres  of  wheat  and 
30  acres  of  oats,  $25.  (Divide  the  charge  between  the  two  ac- 
counts  on  a  basis  of  acreage.) 

July  18.  Paid  for  extra  labor,  $7.50. 

July  20.  Paid  Roy  Wade  on  account,  $8. 

July  21.  Bought  sundry  household  supplies  for  cash,  $11. 

I    I     Sfn  '°*^'^*  ^^'  ^  ^^'^^^^  ^"^^'•^^  i»  savings  bank 
pass  book,  $7.50.  ^ 

Aug.  1.  Sold  hay  for  $160  cash. 

Aug.  1.  Withdrew  all  of  savings  account  balance,  and  paid  in- 
terest on  mortgage,  $60;  and  $500  in  reduction  of  the  principal 
o±  the  mortgage  note. 

Aug.  1.  Paid  Roy  Wade  on  account,  $9. 

Aug.  8.  Paid  for  new  small  pieces  of  equipment,  $12 

Aug  10.  Sold  some  wheat  to  D.  C.  Robbins  for  $500,  receiv- 
ing a  60-day  note  bearing  6%  interest. 

Aug.  20.  Sold  some  oats  for  $450  cash. 

Aug.  30.  Bought  supplies  for  household,  $15. 

Aug.  31.  Paid  Roy  Wade  $8  on  account. 

Sept.  1.  Paid  cash  for  extra  labor,  $10. 

Sept.   1.  Paid   $250   to   redeem  note  held   by   landlord,   due 
today.  ' 

Sept.  8.  Sold  two  calves  for  $50  cash. 

Sept.  18.  Paid  Roy  Wade  $12  on  account. 

Sept.  21.  Paid  fire  insurance  premiums,  $12. 

Sept.  30.  The  household  record  shows  the  following  com- 
modities turned  over  to  the  house  during  July,  August  and  Sep- 
tember:  poultry,  $4;  eggs,  $16.30;  milk,  $27. 

Sept.  30.  During  the  three  months,  the  household  has  sold  for 
cash  part  of  the  products  as  follows:  eggs,  $9;  butter,  $12. 

Oct  19.  Received  a  check  from  D.  C.  Robbins  to  redeem  his 
note  of  August  10,  with  interest,  $505. 

Oct  19.  Paid  $100  for  Liberty  Bonds.  (Dr.  Liberty  Bond 
account.)  "^ 


1 


SPECIAL  ACCOUNTS  AND  ENTRIES 


215 


Oct.  26.  Paid  Roy  Wade  $20  on  account. 

Oct.  31.  Sold  some  shotes  for  $300  cash. 

Nov.   6.  Bought   sundry   household   supplies,   $15. 

Nov.  15.  Sold  poultry  for  $18  cash. 

Nov.  16.  Donated  $25  to  Red  Cross  work.     (General  Expense.) 

Dec.  1.  Sold  400  bu.  com  at  $1.20  for  cash. 

Dec.  2.  Bought  a  half  interest  ^  in  a  self  feed  com  sheller 
for  $42.50  cash. 

Dec.  15.  Paid  $250  to  redeem  note  held  by  landlord  due  to- 
day. 

Dec.  20.  Paid  Roy  Wade  cash  to  balance  his  account. 

Dec.  20.  Paid  $30  cash  for  household  supplies. 

Dec.  31.  The  household  record  shows  the  following  commodities 
turned  over  to  the  house  during  October,  November  and  Decem- 
ber: poultry,  $10;  eggs,  $12;  milk,  $30. 

Dec.  31.  During  the  three  months,  the  household  has  sold  for 
cash  part  of  the  products  as  follows:  eggs,  $3;  butter,  $13. 

Dec.  31.  Mr.  Fay  places  the  value  of  his  services  as  a  laborer 
at  $600  for  the  year. 

Dec.  31.  Inventories  taken  on  this  date  showed  the  following 
values:  household  furnishings,  $500;  horses,  $1200;  cattle,  $600; 
hogs,  $300;  poultry,  $30;  wheat,  $200;  oats,  $300;  corn,  $1250; 
hay,  $330.  Equipment  has  depreciated  10%  during  the  year 
(diminishing  value  method). 

(a)  Post  to  the  ledger  accounts. 

(b)  Take  a  trial  balance  before  considering  inventories. 

(c)  Make  the  proper  entries  for  inventories. 

(d)  Prepare  a  Loss  and  Gain  account,  close  and  rule  off  the 
necessary  accounts  to  show  net  profit  in  Fay's  Capital  account. 

(e)  Take  a  trial  balance  after  closing,  which  may  also  be  used 
as  a  Statement  of  Resources  and  Liabilities  as  of  Dec.  31,  1917. 

(f)  Prepare  a  Farm  and  Individual  Income  Statement  for 
the  year. 

*  This  requires  a  debit  to  Equipment  account  for  only  $42.50.  If  the 
comparative  inventory  record  were  in  use,  the  machine  would  be  en- 
tered as  a  matter  of  record,  with  proper  notation  to  indicate  the 
other  half -owner. 


Mi 


IF    1 


1 


i4l 


216 


FARM  ACCOUNTING 


(g)  Prepare  a  Change  of  Wealth  Statement  as  of  Dec.  31, 
1917. 

Note. — The  books  and  accounts  of  problems  3  and  4  above 
are  to  be  used  later  in  a  comparative  study  and  discussion  as 
outlined  under  problem  2,  Chapters  VIII  and  IX. 


B^ 


h 


REVIEW  QUESTIONS 

1.  State  two  ways  of  treating  expenses  and  incomes  connected 

with  fair  exhibits. 

2.  In  shipping  goods  to  be  sold  on  consignment,  what  entry  is 

made  at  the  time  the  shipment  is  sent?     Discuss. 

3.  What  entry  is  made  when  the  consignee  renders  his  account 

sales? 

4.  Discuss  the  use  of  the  Loss  on  Auction  Sales  account. 

5.  What  entry  is  made  at  the  time  property  is  destroyed  by 

fire? 

6.  When  the  insurance  company  settles  for  a  fire  loss,  what  entry 

is  made?     When  some  salvage  is  sold? 

7.  How  is  salvage  retained  for  use  on  the  farm  treated  in  the 

books?    What  is  done  with  the  balance  of  Fire  Loss  ac- 
count? 

8.  Discuss  two  ways  of  recording  death  of  livestock,  stating  the 

effect  of  each  on  the  livestock  account  and  on  the  Loss 
and  Gain  account. 

9.  Discuss  any  special  transactions  involved  in  market  garden- 

ing, and  crops  sold  under  contract. 

10.  What  value  is  considered  as  the  investment  in  an  orchard 

as  compared  with  expenses  of  operation? 

11.  How  are  incomes  and  expenses  recorded  after  the  orchard 

begins  to  bear? 

12.  When  is  depreciation  figured  in  an  orchard? 

13.  Why  is  it  not  safe  to  say  off-hand  that  the  fruit  that  sells 

for  the  highest  price  is  the  one  that  pays  best? 

14.  Discuss  the  use  of  the  Woodland  account.     The  Woodland 

Expense  and  Income  account. 

15.  After  all  standing  timber  is  cut  and  the  woodland  is  cleared 

for  tillage,  what  entries  result? 


SPECIAL  ACCOUNTS  AND  ENTRIES 


217 


16.  What  entries  arise  in  the  bee  industry? 

17.  What  features  in  partnership  operation  of  a  business  re- 

quire special  consideration  from  a  bookkeeping  point  of 
view? 

18.  Discuss  the  opening  entry  of  a  partnership. 

19.  What  is  the  nature  of  the  entry  closing  Loss  and  Gain  ac- 

count in  a  partnership? 

20.  Under  what  conditions  may  profits  or  losses  be  shared  equally 

while  the  capital  of  the  partners  is  unequal? 

21.  What  conditions  in  a  partnership  make  it  desirable  to  credit 

interest  to  the  proprietors  on  their  capital  invested? 

22.  What  is  the  function  of  the  partner's  drawing  account? 

23.  Name  the  points  to  be  covered  in  a  partnership  agreement. 

24.  How  are  the  resources  of  a  partnership  divided  at  time  of 

dissolution  ? 

25.  What  is  the  nature  of  the  entry  made  at  the  time  of  part- 

nership  dissolution  ? 

26.  Is  renting  a  farm  on  shares  equivalent  to  forming  a  part- 

nership ? 

27.  What  conditions  in  leases  and  methods  of  accounting  are  to 

be  considered  before  determining  how  to  treat  transac- 
tions relative  to  share  rental? 

28.  A  given  tenant  receives  one-half  of  value  of  products  and 

livestock  sold.  How  does  his  Swine  account  differ  in 
operation  and  amounts  involved  from  the  account  as  it 
would  appear  if  he  were  a  cash  renter,  or  a  landlord? 

29.  What  effect  does  share  rental  have  on  the  inventory  record? 

30.  How  does  renting  on  a  cash  basis  affect  the  accounts  of  the 

tenant? 

31.  When  a  landlord  owns  and  operates  more  than  one  farm,  how 

should  his  accounts  be  kept? 

32.  What  is  the  purpose  of  the  Change  of  Wealth  statement? 

Describe  its  contents  and  discuss  its  results. 

33.  Discuss  the  Farm  and  Individual  Income  Statement  when 

the  Household  account  shows  a  loss ;  when  it  shows  a  gain ; 
when  the  Household  gain  is  more  than  the  gain  as  an  indi- 
vidual. 


■  i 


4i 


t        I 


;   r 


CHAPTER  VIII 
COST  ACCOUNTING 

Definition. — It  has  been  said  that  all  accounting  is  cost 
accounting.  It  might  better  be  said  that  all  accounting 
should  be  cost  accounting.  Since  there  is  so  much  account- 
ing, in  the  broad  sense,  however,  that  records  only  cash 
transactions,  inventories,  deferred  charges,  and  deprecia- 
tions without  attempting  to  distribute  expenses  properly 
over  the  various  productive  elements,  it  is  still  quite  proper 
to  consider  that  there  are  two  terms  in  proper  use,  **  ac- 
counting,'' and  ''cost  accounting.*' 

A  cost  system  is  a  method  of  apportioning  elements  of 
expense  and  income  over  a  nuniber  of  operations  within  the 
same  business.  Cost  accounting  is  that  interpretation  of 
transactions  and  operations  of  a  business  which  aims  to 
carry  out  the  purpose  of  the  cost  system.  Cost  accounting 
results  in  showing  the  proper  expenses,  income,  and  net 
gain  or  loss  of  each  element  or  department  of  the  business 
that  is  maintained  for  the  purpose  of  producing  income. 

For  the  purpose  of  a  cost  system,  the  term  ''expense'* 
must  include  something  more  than  an  outlay  of  cash  for 
some  commodity  or  service  to  be  consumed  within  a  short 
space  of  time.  That  is,  it  must  include  other  than  so-called 
cash  expenses. 

By  the  term  "operation"  in  farm  cost  accounting  is 
meant  each  of  the  several  crops  or  classes  of  livestock  which 
are  grown  or  maintained  on  the  farm.  The  "productive 
elements"  on  a  farm  include  practically  the  same  articles 
or  bodies  as  the  operations,  except  that  draft  animals  are 

218 


COST  ACCOUNTING 


219 


not  considered  as  productive  elements.  The  latter  are  not 
kept  for  the  purpose  of  making  a  profit,  but  merely  to 
assist  in  reducing  costs  of  production  among  the  really 
productive  elements. 

Cost  and  General  Accounting  Compared.— A  comparison 
between  a  set  of  accounts  kept  under  a  cost  system  and 
.one  kept  under  a  general  system  might  be  summarized  as 

follows : 

(a)  The  cost  system  includes  all  that  the  general  sys- 
tem does. 

(b)  The  cost  system  includes  no  more  transactions  with 

outside  parties  than  the  general  system. 

(c)  The  cost  system  includes  more  expenses  and  incomes 
within  the  business,  commonly  called  adjustments,  or 
transfers  from  one  account  to  another. 

The  general  system,  therefore,  is  sufficient  if  one  wishes 
to  find  his  profit  as  a  farmer,  as  distinct  from  his  profit  as 
an  individual ;  and  to  find  the  amounts  of  the  expenses  and 
of  the  sales  of  various  commodities  represented  by  trans- 
actions with  outsiders.  The  general  system  of  accountvng 
is  not  sufficient  if  one  urishes  to  find  the  profit  from  each 
branch  of  his  farming  operations,  after  considering  all  ex- 
penses of  production  and  maintenance  and  all  incomes  re- 
sulting from  the  consumption  of  the  productive  elements 
on  the  farm,  as  well  as  from  sales. 

The  showing  of  such  detailed  profits  requires  the  keeping 
of  cost  records  to  collect  the  data.  The  matter  of  collect- 
ing the  data  is  a  very  important  one  in  accounting. 

Under  the  general  system,  data  collection  is  carried  on 
more  or  less  automatically.  Some  commodities  are  bought 
and  a  bill  is  received  showing  the  nature  and  value.  This 
bill  is  used  as  a  basis  for  making  the  check  or  currency 
payment  and  the  cash  entry.  A  lease  is  signed.  This  forms 
the  basis  for  making  a  check  or  note  and  the  corresponding 
entries  for  rent.    A  contract  is  made  with  the  hired  man. 


i( 


11 


220 


FARM  ACCOUNTING 


COST  ACCOUNTING 


221 


I 


This  is  the  information  supporting  the  entries  for  labor. 
Some  grain  is  sold  for  cash.  The  specific  amount  received 
supplies  the  data  from  which  cash  is  debited  and  the 
proper  grain  account  credited. 

Under  the  cost  system,  data  collection  includes  all  that 
is  included  under  the  general  system  and  more.  The  col- 
lection of  data  for  cost  records  is  not  carried  on  automati-  ■ 
cally,  because  there  are  usually  no  documents  to  support 
the  making  of  entries.  The  nature  of  the  cost  data  explains 
this.  Cost  data  are  collected  from  transactions  between 
inanimate  objects  or  inhuman  beings  on  the  farm.  They 
represent  more  or  less  continuous  operations  which  are  dif- 
ficult to  analyze  into  completed  transactions.  Hence,  it 
is  more  difficult  to  obtain  this  class  of  information  for 
bookkeeping  entries. 

Some  of  the  more  important  elements  of  cost  not  con- 
sidered for  each  branch  of  farm  operations  in  the  general 
system  are:  labor,  horse  labor,  feed,  depreciation  of  equip- 
ment and  buildings,  repairs,  rent,  interest  and  general  ex- 
penses. Likewise,  in  general  accounting,  crops  used  on  the 
farm  are  not  accounted  for  as  incomes  for  which  the  crops 
should  receive  credit. 

In  general  accounting,  one  element  similar  to  these  has 
been  considered;  namely,  the  consumption  by  the  house- 
hold of  some  of  the  dairy  and  poultry  products,  and  the 
giving  by  the  household  of  certain  services  and  food  for 
the  benefit  of  farm  labor.  This  is  one  reason  why  the 
transactions  between  the  household  and  the  farm  are  more 
involved  in  cost  than  in  general  accounting— because  they 
involve  transactions  within  the  farm  premises  only.  They 
involve,  however,  transactions  between  the  farm  proper 
and  the  household,  which  must  be  recorded  properly  in 
order  to  enable  the  profit  or  loss  as  a  farmer  to  be  shown 
separate  from  the  profit  or  loss  as  an  individual  even  under 
the  general  system. 


Use  of  Cost  Data.^What  is  done  with  the  cost  data  after 
collection  ?  It  is  used  to  the  best  advantage  in  the  accounts. 
All  data  should  he  collected  with  a  definite  end  in  view. 
They  should  not  he  collected  merely  to  hring  a  lot  of  fig- 
ures together. 

The  results  ohtained  from  the  collection  of  a  mass  of 
data  should  he  correlated  as  much  as  possihle  with  some 
other  results.  For  example,  the  results  showing  the  cost 
of  man  labor  and  horse  labor  in  the  production  of  corn 
should  be  correlated — ^brought  into  juxtaposition— with  fig- 
ures showing  other  costs  connected  with  corn;  and  also 
with  income  from  corn.  This  is  effected  by  bringing  all 
the  information  concerning  the  costs  of  corn  under  the 
account  with  corn  in  the  ledger.  Any  information,  then, 
concerning  the  cost  of,  or  income  from,  com  can  be  found 
by  referring  to  the  ledger  account  bearing  that  title.  It  is 
sometimes  necessary  to  refer  back  to  the  account  with  the 
field  ^  in  which  it  was  produced,  as  field  No.  1,  No.  2  or 
No.  3,  in  order  to  get  certain  details  of  the  cost. 

In  order  to  get  the  figures  from  the  cost  records  into  the 
proper  places  in  the  ledger,  an  entry  is  made  in  the  cash 
journal  expressing  the  proper  debits  and  credits  to  the 
accounts  affected.  These  are  then  posted  to  the  proper  ac- 
counts. For  example,  if  the  cost  records  show  that  com 
valued  at  $100  has  been  fed  to  the  hogs  during  a  given 
period  of  time,  an  entry  should  be  made  in  the  cash  jour- 
nal debiting  the  Swine  account  and  crediting  Com  ac- 
count. This  entry  is  then  posted  to  the  ledger  according 
to  the  ordinary  methods  of  posting.  Such  an  entry  in  the 
cash  journal  may  be  dispensed  with,  if  the  cost  data  are 
tabulated  in  permanent  books  that  can  be  used  as  post- 
ing mediums. 

This  is  one  of  the  most  essential  features  of  the  double 
entry  system  of  farm  accounting.     There  is  a  centraliza- 

*See  ** Operation  of  Field  Accounts.'' 


rt 


222 


FARM  ACCOUNTING 


* 


tion  of  data  in  the  accounts  which  makes  the  records  much 
more  useful  than  under  the  single  entry  or  purely  statis- 
tical system.  All  figures  concerning  a  department  of  farm 
operations  are  brought  together  under  one  heading  in 
the  ledger  where  the  net  results  of  the  operations  of  that 
department  can  be  found.  Then  the  results  of  these  sev- 
eral departmental  or  productive  accounts  are  brought  to- 
gether under  one  heading  called  Loss  and  Gain  account, 
if  they  show  either  an  expense  or  an  income.  The  result 
of  all  these  losses  and  gains  brought  into  the  Loss  and 
Gain  account  shows  the  net  loss  or  gain  for  the  period  of 
time  under  consideration. 

Some  so-called  systems  of  farm  accounting  provide  elab- 
orately ruled  columns  for  various  and  multitudinous  fig- 
ures concerning  costs  of  production,  and  income  and  other 
facts,  but  they  do  not  make  provision  for  correlating  these 
results  with  other  elements  of  cost  and  income.  In  other 
words,  the  many  variations  of  the  single  entry  or  statisti- 
cal system  provide  for  the  collection  of  data  without  mak- 
ing provision,  at  the  same  time,  for  the  intelligent  use  of 
such  data. 

Purpose  of  a  Cost  System.— The  question  should  nat- 
urally arise,  **Why  do  we  keep  cost  records,  including 
those  that  show  the  cost  of  labor  employed,  and  the  cost 
of  grain  consumed?'' 

There  are  three  mam  reasons  for  keeping  cost  records 
and  using  the  results  in  the  ledger  accounts  as  previously 
indicated. 

(a)  To  find  the  profit  from  each  productive  element  of 
the  farm  after  considering  all  elements  of  cost. 

(h)  To  present  figures  as  a  basis  for  constructive  criti- 
cism of  the  business,  or  of  farming  methods  in  use. 

(c)  Theoretically,  to  fix  prices. 

Finding  Profit  of  Each  Productive  Element.— Anahj zing 
(a)  ahove,  brings  out  a  well  established  principle  in  ac- 


COST  ACCOUNTING 


22S 


counting,  that  a  profit  is  not  a  profit  unless  it  is  produced 
or  calculated  after  all  elements  of  cost  and  income  have 
been  considered.  One  cannot  truly  say  that  he  has  made 
a  profit  of  $1000  on  corn  unless  he  has  considered  all  ele- 
ments of  cost  incurred  in  raising  the  crop,  and  all  ele- 
ments of  income  derived  from  its  disposal.  Labor  of  man 
and  horse  is  a  cost  of  raising  the  com.  Contributions  b" 
the  corn  to  the  upkeep  of  animals  is  a  benefit  derived  from 
the  corn  and  should,  therefore,  be  considered  as  income 
from  the  corn.  Corn  account  should  be  credited,  in  other 
words,  with  the  amount  fed  to  livestock.  The  same  prin- 
ciples apply  to  other  crops. 

Likewise,  the  several  classes  of  livestock  should  be 
charged  with  the  value  of  crops  consumed,  before  finding 
the  profit  on  them.  In  short,  expenses  in  connection  udth 
any  branch  of  farming  operations  should  include  not  only 
cash  expenditures,  but  all  other  costs  arising  from  benefits 
transferred  from  one  department  of  the  farm  to  another. 

Basis  of  Constructive  Criticism. — Analyzing  (b)  above, 
the  second  reason  for  keeping  cost  records,  there  is  one 
point  which  stands  out  preeminent  in  the  operation  of  a 
cost  system.  It  affords  a  basis  for  intelligent  constructive 
criticism.  It  forms  the  basis  for  judging  the  relative  finan- 
cial advantages  derived  from  the  conduct  of  the  several 
farming  operations.  A  man  usually  engages  in  business 
for  the  purpose  of  making  a  profit  from  it.  The  business 
of  farming  is  not  considered  as  an  exception  to  this  rule. 

The  farm£r  desires  to  make  as  much  money  gs  he  can 
from  the  time  he  puts  in  and  the  investment  he  has  made. 
A  desire  to  make  money  is  usually  not  sufficient.  The  de- 
sire must  be  backed  up  by  action.  The  action  should  be 
directed  along  proper  channels.  The  proper  channels  can 
be  determined  very  largely  by  an  intelligent  perusal  and 
interpretation  of  the  accounts  properly  kept  with  the  aid 
of  cost  records.     That  is,  the  intelligent  scrutiny  of  and 


224 


FARM  ACCOUNTING 


r 


ft 


interpretation  of  the  Loss  and  Gain  account  and  the  State- 
ment of  Resources  and  Liabilities  prepared  from  books 
kept  under  a  cost  system,  will  enable  a  farmer  to  find  out 
what  elements  of  his  farming  operations  were  profitable 
in  a  given  year  and  which  unprofitable. 

By  comparing  with  preceding  years,  he  will  be  able  to 
form  conclusions  as  to  whether  the  loss  or  very  small  profit 
in  any  line  is  due  to  unfavorable  weather  or  to  some  ap- 
parently more  permanent  cause,  as  soil,  climate,  market 
conditions  or  poor  management. 

Fixing  Prices,  Theoretically.— The  third  purpose  of  cost 
accounting  on  a  farm,  that  of  fixing  prices,  is  more  theo- 
retical than  practical.  It  is  theoretical,  because  cost  ac- 
counting is  not  universally  applied  to  farming  operations. 
A  few  individuals  knowing  that  they  are  losing  money 
on  a  certain  crop  or  livestock  at  prevailing  prices  cannot 
prevent  the  great  mass  of  other  farmers  from  selling  be- 
low cost.  Some  farmers  like  some  manufacturers  think 
they  are  selling  everything  above  cost  because  they  come 
out  ahead  financially  at  the  close  of  the  year.  As  a  matter 
of  fact  they  are  sometimes  making  one  remunerative  class 
of  goods  carry  the  burdens  of  another  unremunerative 
class. 

If  farmers  throughout  a  competing  district  kept  accur- 
ate and  detailed  cost  records  and  accounts  they  would  be 
able  to  sell  above  cost,  for  the  crops  that  were  losing 
money  would  be  so  generally  discontinued  that  prices 
would  be  adjusted  to  a  reasonable  profit-making  figure. 
As  a  matter  of  fact,  then,  fixing  prices  of  farm  products 
on  a  basis  of  cost  of  production  is  quite  remote,  partly 
because  of  the  great  competing  area  that  produces  and 
sells  in  ignorance  of  cost,  and  partly  because  the  compet- 
ing area  includes  practically  the  whole  world. 

General  Scheme  of  Operation. — In  operating  a  cost 
system  on  the  farm,  it  is  necessary  to  keep  the  cash  journal 


COST  ACCOUNTING 


225 


or  other  suitable  hooks  of  original  entry,  and  the  ledger, 
the  same  as  in  general  accounting.  In  addition  to  these  it 
is  necessary  to  keep  hooks  of  record  into  which  to  collect 
data  concerning  the  transactions  hetween  the  different  farm 
elements.  It  is  not  practical  to  make  an  entry  in  the  gen- 
eral books  (cash  journal  and  ledger)  for  every  day's  labor 
chargeable  to  the  wheat  crop,  for  example.  Neither  is  it 
practical  to  make  an  entry  at  the  close  of  each  day  credit- 
ing Corn  and  debiting  Horses,  Swine  or  Poultry  for  the 
value  of  feed  consumed  during  the  day.  Instead  of  making 
these  entries  every  day,  the  data  that  would  otherwise  go 
to  make  up  such  entries  are  collected  elsewhere,  along  with 
similar  data  from  other  days.  At  the  close  of  a  year  or 
month,  the  aggregate  of  similar  data  is  used  as  a  basis  for 
making  an  entry  in  the  cash  journal.  Thus  the  Wheal, 
Corn,  Horses,  Swine  and  Poultry  accounts  are  affected  ulti- 
mately by  each  day's  labor  or  each  day's  feed  to  the  same 
'extent  they  would  have  been,  had  the  entries  been  made 
in  the  cash  journal  every  day.  Obviously  the  work  in- 
volved is  much  less  when  the  labor  and  feed  costs  can  be 
collected  in  subsidiary  records  and  the  aggregate  results 
used  in  debiting  and  crediting  the  accounts  affected. 

The  subsidiary  records  that  are  in  most  common  use 
on  a  farm  are  the  Labor  Record,  Horse  Labor  Record,  and 
Feed  Record.  The  Tractor  Hour  Record  is  becoming  use- 
ful. 

Labor  Records. — The  Labor  record  always  means  the 
record  showing  the  number  of  hours  and  value  of  labor 
performed  by  man,  on  each  element  of  farm  activity. 

Monthly  Labor  Record. — Illustration  41  presents  a  form 
which  is  bound  in  book  form  or  created  as  a  loose  leaf 
record  to  show  the  class  of  work  each  farm  hand  is  engaged 
in  each  day. 

At  the  close  of  each  day  the  number  of  hours  spent  on 
each  farm  element  is  recorded  as  in  Illustration  41.    For 


L 


226 


FARM  ACCOUNTING 


instance,  the  illustration  shows  that  on  Mar.  1,  1917,  two 
hours  were  spent  in  work  connected  with  the  keeping  of 
cattle,  1  hour  on  horses,  1  on  swine  and  6  in  work  in  field 
No.  1.  On  March  2,  it  is  noted,  among  others,  that  1  hour 
was  spent  for  the  household.  This  might  have  heen  in 
chopping  wood,  churning,  making  garden,  or  some  similar 
work  connected  with  the  house.  On  large  farms,  a  sepa- 
rate monthly  record  may  he  kept  for  each  laborer.  Each 
one  would  be  similar  to  that  shown  in  Illustration  41.    At 

ILLUSTRATION  41 
Labor  Record  for  March,  1917 


Field 

Field 

House- 

Date 

Cattle 

Horses 

Swine 

No.  1 

No.  2 

hold 

Total 

1 

2 

1 

1 

6 

10 

2 

2 

1 

1 

5 

1 

10 

3 

etc. 
31 

'-^    -^ 

Total 

45 

24 

18 

180 

30 

50 

347 

the  close  of  the  month,  the  total  of  each  laborer  *s  sheet 
would  be  transferred  to  a  monthly  summary. 

Using  either  the  Labor  record  of  Illustration  41  or  the 
Labor  Summary  as  described  above,  at  the  close  of  the 
month,  the  total  is  found  for  each  farm  element.  In  Illus- 
tration 41,  for  example,  45  hours  were  spent  on  Cattle,  24 
on  Horses  and  so  on.  This  total  number  of  hours,  multi- 
plied by  the  rate  at  which  labor  is  charged,  is  used  as  a 
basis  for  crediting  Labor  account  and  charging  Cattle, 
Horses,  Swine,  Field  No.  1,  Field  No.  2,  Household,  etc., 
respectively. 


COST  ACCOUNTING 


227 


Yearly  Labor  Record.— If  it  is  not  thought  necessary 
to  make  cash  journal  entries  for  this  labor  at  the  close  of 
each  month,  the  labor  monthly  totals  can  be  summarized 
on  a  yearly  labor  sheet  as  in  Illustration  42.  The  values 
in  this  illustration  are  calculated  on  a  basis  of  20  cents 

ILLUSTRATION  42 
Labor  Record  for  Year  Ended  Feb.  28,  1918 


Month 


1917 

Mar 

Apr 

May 


Cattle 


Horses 


45 


24 


Swine 


18 


Field 
No.  1 


180 


Field 
No.  2 


30 


House- 
hold 


50 


Total 


347 


etc. 

1918 

Jan 

Feb 

• 

Total  Hours 

500 

250 

400 

700 

150 

850 

2,850 

Total  Value.* 

$100 

S50 

$80 

$140 

$30 

$170 

$570 

*A  table  is  presented  in  the  Appendix  to  assist  in  calculating  the 
value  of  man  and  horse  labor.  See  Labor  and  Horse  Labor  Con- 
version Table,  Illustration  75. 

an  hour  for  labor.  The  entries  for  March  in  Illustration 
42  are  taken  from  the  totals  for  the  month  of  March  in 
the  monthly  labor  record  of  Illustration  41. 

Debits  and  Credits  in  Labor  Record.— The  entry  to 
transfer  the  aggregate  value  of  labor  used  during  the  year 
is  shown  in  Illustration  43,  using  the  figures  from  Illus- 
tration 42. 


« 


I 


228  FARM  ACCOUNTING 

ILLUSTRATION  43 
Entry  fob  Labor  at  Close  op  Year 

(Simple  Journal  Form  Used  for  Convenience) 

<^attle 1100 

Horses 50 

Swine gQ 

Field  No.  1 149 

Field  No.  2 30 

Household 179 

Labor  (Credited  with  total) 1579 

The  debits  and  credits  may  be  posted  direct  from  the 
Labor  Record  by  indicating  the  ledger  pages  below  the 
amounts  in  the  record.  However,  care  should  be  exercised 
in  making  sure  that  the  debits  and  credits  posted  are  of 
equal  amounts. 

Daily  Labor  Record.— Although  entirely  impractical 
for  any  but  the  largest  farms,  a  daily  labor  record  may  be 
kept.  It  shows  the  exact  nature  of  the  work  performed  by 
a  laborer  every  hour  of  the  day  or  even  every  fifteen  min- 
utes if  desired.  If  such  a  form  is  employed,  it  is  used  as 
a  means  of  collecting  data  to  fill  into  the  monthly  labor 
record  of  Illustration  41. 

A  daily  Labor  Record  designed  by  the  U.  S.  Department 
of  Agriculture  is  shown  in  Illustration  44.  It  is  called 
** Regular  Worker's  Daily  Time  Sheet "^  Provision  is 
made  thereon  for  showing  the  nature  of  the  work  being 
done  at  every  change  in  operations  during  the  day.  If  the 
man  eats  breakfast  from  6:30  to  7:00  A.M.  that  fact  is 
recorded.  If  it  rains  from  2 :45  to  3 :45  P.M.,  causing  work 
to  cease,  notation  to  that  effect  is  made  in  the  proper  space 
indicated  by  the  time  of  the  day  in  question. 

•  This  form  has  recently  been  altered  somewhat  in  the  details,  the 
principles  remaining  the  same. 


ILL.aSTRATION  44 

Regular  Worker's  Daily  Time  Sheet 


rORM  A. 

U.  S.  Department  of  AortcuUure 
in  cooperation  with 

DAT  OF  Week:  Tuesday, 


C.  A.  SmUh,  Oakdaie,  Mich. 

Datb  April  SO.         1917. 


KIND    OF    WORK. 

Include  implements  uaed.  number  of  loads,  etc. 


Sauple  Sheet.  Refer  to  Notes  on  Cover. 


4.30— 
5.00—^ 


Care  of  horses.     See  NoU  9. 


5.30— 
6.00-^ 
6.30—' 
7.00-^ 


Feeding  cows  and  mUting.     See  Note  9. 


Breakfast. 


7.30— 
8.00—^ 


PUnoing  for  corn,  T  deep,  IS"  riding  plow. 
8.30 —  See  Note  4. 

9.00-^ 

9.30—* 

10.00—^ 

10.30—' 
11.00-^ 
11.30—' 

12.00—^ — ■ 

12.30—'        Dinner. 

l.Wh^ — 

1.30—' 

Hauling  manure — spreader.  3  loads. 
2 .  00 Working  toUh  Ed.  Moore.  See  NoU  6. 


Disking  for  com  {John  Deere  12  dist). 
See  Note  4. 


FIELD. 


MAN 

HOURS. 


H 


IH 


2.30— 
3.00-^ 


3.30— 
4.00—^ 


Rain — Nothing  done.     See  Note  6. 


4.30— 


Repairing  fence.    See  NoU  8. 


6.00 

6.30—' 


Feeding  cows  and  milking. 


6.00— 

6.30—' 

7.00—^ 

7.30—' 

8. 


Care  of  horses. 


IH 


HOB8E. 


NO. 


HOURS. 


I 


Note  3  (&) 
9 


H 


Supper. 


Workman 


Sam  Edwards. 


Total  Hoxjrs 


Rbmarkb 


lOH 


16 


report  o.  k. 

O*  A.  o.« 

Prop. 


229 


230 


FARM  ACCOUNTING 


:  I, 


This  form  of  Daily  Labor  Record  is  also  used  to  record 
facts  about  machines  in  use.  For  example,  if  a  specific 
riding  plow  is  in  use  from  7:00  to  10:00  AM.  such  nota- 
tion  IS  made  together  with  the  nature  of  the  operation 
Plowing  for  corn  7  inches  deep.-  The  field  in  which 
the  operation  is  carried  on  is  shown  in  a  special  column  as 
are  also  the  number  of  horse  hours. 

Explanatory  notes  giving  directions  for  the  use  of  the 
Regular  Worker's  Daily  Time  Sheet  are  presented  in  11- 
lustration  45.  These  directions  are  printed  on  the  inside 
front  cover  of  each  book  put  out  by  the  U.  S.  Department 
of  Agriculture.  The  book  contains  a  great  many  of  the 
blank  forms  of  which  the  one  of  Illustration  44  is  a  sample 
with  Items  recorded  thereon  for  illustrative  purposes. 

.    ILLUSTRATION  45 
Directions  for  Making  Out  Report 
{Read  Carefully) 

1.  The  time  sheet  should  be  made  out  at  the  close  of  each  day 
by  each  regular  workman,  and  signed  by  him.  The  proprietor 
or  superintendent  should  O.  K.  the  report.  If  for  any  reason 
the  regular  workman  can  not  make  out  report  the  proprietor  or 
supenntendent  should  make  it  out  for  him. 

2  Each  operation  or  kind  of  work  should  be  reported  sepa- 
rately, so  as  to  avoid  confusion  in  classifying  the  records. 

3.  (a)  To  fill  out,  draw  a  line  completely  across  the  sheet  from 
the  time  when  you  begin  a  kind  of  work  and  another  line  from 
the  time  when  you  stop  that  particular  work,  filling  in  the  name 
of  work  between  the  lines,  as,  for  example,  suppose  you  began 
plowing  for  corn,  field  A,  at  7.00  o^clock  and  finished  at  10.00 
Draw  a  line  across  the  sheet  from  the  figure  7.00  and  another 
from  the  figure  10.00;  fill  in  the  words  "Plowing;"  also  give  the 
field  letter  and  number  of  horses  used.  Continue  the  time  of  be- 
ginning and  ending  on  the  different  kinds  of  work  until  all  the 
work  for  the  day  is  reported.     In  the  proper  columns  put  the 


COST  ACCOUNTING 


231 


field  or  place  where  the  work  was  done,  the  number  of  man  hours, 
the  number  of  horses  working,  and  the  total  number  of  horse 
hours.    The  dots  indicate  quarter  hours. 

(b)  In  figuring  horse  hours,  the  number  of  hours  worked 
should  be  multiplied  by  the  number  of  horses  used;  that  is,  if  you 
use  2  horses  4  hours,  it  is  8  horse  hours. 

4.  Name  implements  used  when  work  is  reported,  and  when 
hauling  state  number  of  loads;  also  weights,  if  weighings  are 
made. 

5.  When  two  or  more  men  are  using  the  same  team  only  one 
should  report  the  number  of  horses  and  horse  hours.    The  other 

should  report  helping  or  "working  with "  in  the 

use  of  said  team. 

6.  Make  out  report  for  every  day,  including  Sundays.  Account 
for  the  whole  day.  State  when  nothing  is  done  and,  if  convenient, 
give  reason. 

7.  When  a  man  does  not  work  at  all  on  a  certain  day,  report 
should  be  made  out  for  that  day,  stating  this  fact. 

8.  Avoid  combining  reports  of  different  kinds  of  work,  as 
"plowing  and  harrowing'*  a  field  or  using  such  terms  as  "odd 
jobs,"  "chores,"  "went  to  town,"  etc.,  as  it  is  impossible  to  prop- 
erly interpret  such  items.  State  exactly  what  was  done,  as 
"plowing,"  "harrowing,"  "mending  harness,"  "repairing  fences," 
"cleaning  out  horse  bam,"  "went  to  town  for  groceries  or  per- 
sonal business,"  etc.,  giving  the  time  each  operation  required. 
Also  avoid  indefinite  expressions .  as  "work  on  roads,"  "work  on 
fences,"  etc.,  but  state  what  the  work  was,  as  "grading  farm 
roads,"  "public  road  repairs,"  "repairing  fences,"  "building 
fences,"  etc. 

9.  In  reporting  livestock,  report  separately  work  on  each  kind 
of  stock  unless  otherwise  directed  by  proprietor. 

Note. — Make  two  copies  at  one  time  by  putting  carbon  sheet 
(carbon  side  down)  under  sheet.  Tear  out  original  and  allow 
copy  to  remain  in  pad.    Study  the  sample  sheet. 

Hourly  Cost  of  Labor.— In  calculating  the  total  value  of 
labor  in  Illustration  42,  a  rate  of  20  cents  an  hour  was 
used  because  that  is  the  common  rate  that  has  been  found 


I 


!-      1 


t  ! 


\\ 


232 


FARM  ACCOUNTING 


to  apply  on  a  great  many  farms.  It  is  a  convenient  i^ate 
to  use  because  of  the  ease  with  which  calculations  can  be 
made  from  it.  If  one  does  not  have  occasion  to  doubt  its 
accuracy  to  a  very  great  extent,  it  should  be  used  on  the 
average  farm.  However,  if  one  finds  or  knows  that  labor 
on  his  farm  costs  more  or  less  than  that  amount,  he  should 
use  the  rate  that  represents  the  facts. 

When  one  does  not  know  what  rate  represents  the  facts, 
he  may  find  the  rate  after  having  determined  the  total  num- 
ber of  hours  in  the  yearly  labor  record.  This  is  the  amount 
corresponding  to  the  2850  hours  of  Illustration  42.  The 
total  hours  is  divided  into  the  total  labor  cost  as  shown 
on  the  debit  side  of  Labor  account.  This  result  gives  the 
cost  per  hour  for  all  work  during  the  year.  This  hourly 
rate  is  applied  to  the  total  hours  of  each  of  the  farm  ele- 
ments in  the  same  way  as  the  20-cent  rate  was  applied  in 
Illustration  42. 

If  the  flat  rate  of  20  cents  is  used,  it  usually  leaves  a 
balance  in  Labor  account.  Such  balance  is  closed  into 
General  Expense  before  closing  the  latter. 

Horse  Labor  Record. — The  principles  presented  in  con- 
nection with  labor  records  are  applicable  practically  with- 
out change  to  horse  labor  records.  In  recording  the  num- 
ber of  hours  worked  each  day,  the  horse  is  used  as  a  unit 
rather  than  the  team.  If  a  team  works  6  hours  on  Field 
No.  1  on  Mar.  1,  the  notation  in  the  horse  labor  record 
at  the  close  of  the  day  would  show  12  in  the  proper  place 
tinder  Field  No.  1,  opposite  Mar.  1.  This  means  12  horse 
hours.  The  summary  and  journal  entry  are  prepared  in 
the  same  way  as  shown  for  labor  in  Illustrations  41,  42 
and  43.  Horses  are  not  charged  with  the  value  of  their 
work  performed  for  horses. 

In  the  journal  entry.  Horse  account  is  credited  with  the 
value  of  the  horse  labor.  The  cost  per  horse  hour  is  cal- 
culated on  a  basis  of  about  one-half  the  cost  of  a  man 


ii 


COST  ACCOUNTING 


233 


hour.  If  such  an  arbitrary  rate  is  not  used  the  cost  per 
hour  of  horse  labor  is  found  by  dividing  the  total  horse 
hours  worked  during  the  year  on  all  elements  into  the 
cost  of  maintaining  the  horses.  Such  cost  of  maintenance 
is  determined  by  taking  the  net  loss  shown  in  the  Horse 
account,  after  considering  inventories  and  deducting  ex- 
traordinary losses. 

If  the  flat  rate  of,  say,  10  cents  is  used,  and  all  of  the 
cost  of  keeping  horses  is  not  charged,  or  if  too  much  is 
charged  out,  any  balance  remaining  in  Horse  account, 
after  considering  inventory,  constitutes  part  of  the  bal- 
ance carried  to  Loss  and  Gain  account,  along  with  profits 
or  losses  arising  from  sale  or  natural  increase. 

Tractor  Hours. — ^When  the  tractor  is  used  in  the  place 
of  horses,  a  record  similar  to  the  horse  labor  record  is  kept 
so  as  to  show  the  hours  worked  on  each  field.  At  the  close 
of  the  month  or  year,  an  entry  is  made  to  bring  the  proper 
charges  into  the  ledger  accounts  affected,  tractor  account 
being  credited. 

Exchange  Labor  Account. — In  order  to  account  properly 
for  all  man  and  horse  labor  on  the  farm,  it  is  often  neces- 
sary to  keep  an  account  which  will  record  the  value  of  the 
work  performed  for  the  neighbors  and  by  the  neighbors. 
This  account  bears  the  title  '  *  Exchange  Labor. ' '  It  should 
be  treated,  for  all  practical  purposes,  as  an  account  with 
the  neighbors. 

We  debit  our  neighbors  through  exchange  labor  account 
when  we  work  for  them  and  credit  them  when  they  work 
for  us.  This  rule  applies  in  all  cases,  whether  the  work  be 
done  by  man  or  horse;  and  whether  it  be  in  the  oat  field 
or  for  the  house.  Exchange  of  work  by  the  women  in  the 
house,  as  at  harvest  time,  for  example,  would  not  come 
under  this  rule,  but  any  work  performed  by  neighbors, 
such  as  sawing  wood  for  the  house,  would  be  given  con- 
sideration in  the  account  called  Exchange  Labor. 


p 


M 


SS4 


FARM  ACCOUNTING 


It  is  obvious  from  the  nature  of  the  account  that  it 
would  be  in  balance  at  the  close  of  any  year,  if  we  worked 
for  our  neighbors  just  as  many  hours  with  a  man  and 
team  as  they  worked  for  us.  If  we  worked  more  hours, 
the  account  would  have  a  debit  balance.  If  we  worked 
less  hours,  it  would  have  a  credit  balance. 

Exchange  Labor  Balance. — This  brings  up  an  important 
feature  of  this  account.  Ordinarily,  if  we  charge  someone 
for  services  and  do  not  get  full  pay  in  return,  we  consider 
the  debit  balance  in  such  an  account  as  a  resource.  In 
this  case  it  is  not  a  resource,  because  we  do  not  expect 
to  collect  it,  under  the  usual  working  agreements  existing 
among  farmers. 

The  balance  of  Exchange  Labor  account  is  an  expense  or 
an  income  depending  on  whether  it  is  a  debit  or  credit 
respectively.  Any  balance  remaining  in  the  account  at 
the  time  of  closing  the  books  for  the  year,  is  closed  into 
General  Expense  account.  A  debit  balance  of  the  Exchange 
Labor  account  is  considered  an  expense  in  that  it  repre- 
sents a  donation  to  our  neighbors.  A  credit  balance  is  con- 
sidered as  an  income  or  negative  expense  and  is  credited 
to  General  Expense  account  because  it  is  an  item  that  tends 
to  reduce  the  farm  expenses. 

The  disposition  of  the  balance  of  the  account  is  the  ele- 
ment that  gives  it  its  name.  It  might  be  called  **  neigh- 
bors'* account,  except  for  the  fact  that  the  balance  of  the 
account  with  such  a  title  should  be  considered  as  a  resource 
or  liability  With  the  title  **  Exchange  Labor, '*  it  is  ap- 
parent that  its  balance  is  an  expense  or  income. 

The  account  as  described  above  is  seen  to  be  one  that 
shows  in  the  aggregate  the  relation  between  the  amount 
of  labor  given  and  received  in  exchange  with  the  neigh- 
bors. Its  purpose  is  served  at  the  end  of  a  year  if  it  en- 
ables the  farmer  to  form  opinions  and  policies  as  to  the 
exchange  of  labor  in  succeeding  years.    It  does  not  show 


i 


COST  ACCOUNTING 


235 


the  exchange  labor  relations  with  each  of  the  neighbors, 
but  merely  with  all  of  them  considered  together.  If  one 
wants  to  find  out  whether  he  is  giving  more  labor  than 
he  receives  from  any  specific  neighbor,  he  can  keep  a 
memorandum  of  the  number  of  hours  exchanged  between 
himself  and  the  neighbor.  Such  a  notation  would  not  af- 
fect the  keeping  of  the  Exchange  Labor  account  in  any 
way. 

Recording  Exchange  Labor.— TAe  Entries  in  the  Ex- 
change Labor  account  com£  from  the  Labor  record  and  the 
Horse  Labor  record.  In  these  two  records,  all  debits  and 
credits  to  Exchange  Labor  account  have  their  origin.  The 
debits  are  expressed  in  the  same  way  that  debits  are  ex- 
pressed for  work  performed  on  the  farm.  The  credits  are 
expressed  from  time  to  time  by  some  distinguishing  mark 
to  indicate  the  specific  labor  performed  by  the  neighbors. 

The  operation  of  these  original  entries  for  debits  and 
credits  to  Exchange  Labor,  is  represented  in  Illustrations 
46  and  47. 

Illustration  46  represents  a  labor  record  for  a  month  in 
which  we  worked  for  neighbors  and  neighbors  worked  for 
us.  It  shows  that  on  July  1,  our  neighbors  worked  40 
hours  in  field  No.  1,  while  the  regularly  employed  men  (pro- 
prietor or  hired  man,  or  both)  worked  16  hours  in  the  same 
field.  On  July  2,  our  neighbors  worked  42  hours  in  field 
No.  1,  while  the  regular  men  worked  16  houi-s  in  the  field. 
These  facts  are  shown  in  the  column  headed  Field  No.  1. 
The  number  of  hours  worked  in  that  field  by  all  classes 
of  laborers  on  July  1  was  56  and  on  July  2  was  58.  The 
40  and  42  hours  worked  by  the  neighbors  are  recorded  in 
parentheses  merely  as  a  means  of  identification,  so  that 
they  may  be  kept  separate  throughout  the  month  and  year. 
For  this  reason,  the  totals,  both  vertical  and  horizontal, 
show  within  parentheses  the  hours  worked  by  the  neigh- 


I«< 


236 


FARM  ACCOUNTING 


COST  ACCOUNTING 


237 


Ufl\ 


If  '' 

1, ' 


,1 


ILLUSTRATION  46 
Labor  Record  Involving  Exchange  Labor  for  July,  1917 


Date 

Cattle 

Horses 

Swine 

Field 
No.  1 

Ex- 
change 
Labor 

House- 
hold 

Total 

1 

2 

2 
3 

1 

1 
1 

1 

1 

2 

(40) 
16 

(42) 
16 

12 

1 
3 

(40) 
20 

2 

(42) 
20 

3 

21 

etc. 

30.. 

31.. 


Total  Hours 


3 

2 

1 

13 

2 

1 

1 

14 

1 

(82) 

60 

35 

30 

32 

39 

37 

19 
19 


(82) 
233 


bors.^  Thus,  the  total  for  July  1  shows  40  hours  worked 
by  the  neighbors  and  20  hours  by  the  regular  men.  Like- 
wise, the  total  of  the  Field  No.  1  column,  shows  82  hours 
worked  by  neighbors  and  32  hours  worked  by  the  reg- 
ulars during  the  month.  The  totals  for  the  month  are  self- 
proving,  in  that  the  amounts  in  the  lower  right-hand  cor- 
ner are  obtained  by  adding  the  total  column  or  by  adding 
horizontally  the  totals  of  the  several  columns  as  cattle, 
horses  and  so  on.  In  this  way  it  is  proved  that  during 
the  month  of  July  the  total  hours  worked  by  our  neigh- 
bors was  82  and  by  the  regular  men  on  the  farm,  233. 

In  order  to  find  the  number  of  hours  that  we  worked 
for  neighbors  during  the  month  of  July,  it  is  necessary 
to  refer  only  to  the  column  headed  Exchange  Labor.     It 

*  Instead  of  parentheses  the  distinction  could  be  made  by  means  of 
red  ink  or  red  pencil. 


ILLUSTRATION  47 

Labor  Record,  Involving  Exchange  Labor,  foe  the  Year 

Ended  Feb.  28,  1918 


Month 


1917 
March 
April . 
May.. 

June . . 

July.. 

Aug.. 
Sept.. 
Oct... 
Nov. . 
Dec. 
1918 

Jan 

Feb... 


To+al  Hours 


Total  Value 
at  20c.  per 
hour 


Cattle 


78 
83 
70 

65 

60 

50 
55 
55 
67 
68 

72 
75 


Horses 


798 


$159.60 


43 
47 
40 

40 

35 

38 
28 
25 
36 
50 

46 
45 


Swine 


473 


$94.60 


45 
52 
43 

37 

30 

35 
60 
46 
51 
62 

54 
50 


Field 
No.  1 


13 
42 


Ex- 
change 
Labor 


565 


$113.00 


38 


(115) 
169 


(23.00) 


$33.80 


16 

12 

39 
20 

40 
30 


House- 
hold 


157 


$31.40 


8 
20 
45 

10 

37 

27 
48 
58 
63 
77 

86 
40 


519 


$103.80 


Total 
Hours 


258 
210 


(115) 
2,681 


(23.00) 


$536.20 


shows  that  we  worked  for  neighbors  12  hours  on  July  3, 
13  hours  on  July  30,  and  14  hours  on  July  31.  Appar- 
ently we  did  not  work  for  them  on  any  day  between  July  3 


238 


FARM  ACCOUNTING 


II  ■ 


i 


'11 


and  July  30,  for  the  total  of  the  column  seems  to  be  the 
total  of  the  three  figures  shown  in  the  illustration.  These 
last  named  figures  for  exchange  labor  are  not  identified 
by  parentheses  because,  they  are  sufficiently  designated  by 
being  placed  in  a  special  exchange  labor  column. 

Illustration  47  shows  a  labor  record  summary  for  the 
year.  It  is  prepared  from  the  twelve  monthly  labor  rec- 
ords of  the  year.  The  method  of  preparing  the  yearly 
summary  can  be  studied  by  verifying  the  transfer  of  the 
July  totals,  as  given  in  Illustration  46,  to  the  space  used 
for  July  results  in  Illustration  47.  The  figures  for  the 
other  months  in  the  yearly  summary  labor  record  are  ob- 
tained by  a  process  similar  to  that  used  in  obtaining  the 
July  results. 

The  labor  record  for  the  year  has  two  totals,  one  for  the 
time  worked  expressed  in  hours,  and  the  other  for  the 
value  of  the  time  expressed  in  dollars  and  cents.  In  Il- 
lustration 47  the  total  value  is  obtained  by  considering  one 
hour's  time  as  worth  twenty  cents,  a  fair  average  rate. 

The  items  in  parentheses  have  been  carried  through  to 
the  final  total,  which  shows  that  $23  is  the  value  of  the 
time  worked  by  neighbors  on  the  various  farm  operations 
during  the  year.  The  yearly  summary  also  shows  that 
we  worked  for  neighbors  157  hours,  which  is  charged  at 
a  value  of  $31.40. 

The  debits  and  credits  expressed  in  the  Labor  Record 
for  the  year,  as  presented  in  Illustration  47,  may  be  ex- 
pressed first  in  the  cash  journal,  as  shown  in  Illustration 
48,  or  may  be  posted  direct  to  the  ledger  accounts  from 
the  labor  record  book. 

.  It  may  be  concluded  from  the  entry  of  Illustration  48 
that  the  object  in  designating  by  parenthesis,  or  any  other 
device,  the  labor  performed  by  the  neighbors  from  day 
to  day  and  month  to  month,  is  to  obtain  the  amount  to 
credit  to  Exchange  Labor  account  at  the  close  of  the  year, 


COST  ACCOUNTING  239 

ILLUSTRATION  48 

Entry  Involving  Exchange  Labor,  Feb.  28,  1918 
(simple  journal  form  used  for  convenience) 

Cattle $159.60 

Horses 94.60 

Swine 11^^ 

Field  No.  1 ^^-^ 

Exchange  Labor 31 .40 

Household....: 103.80 

Labor ^6.20 

Exchange  Labor 23.00 

$23  in  the  case  at  hand.  Exchange  Labor  account  is  deb- 
ited with  the  value  of  labor  chargeable  to  the  neighbors, 
$31.40  in  this  case,  as  shown  by  the  exchange  labor  column 
of  Illustration  47. 

Concerning  the  debit  to  Field  No.  1  as  expressed  in  the 
entry  of  Illustration  48,  it  is  perhaps  sufficient  to  state 
that  the  $56.80  is  the  sum  of  the  $23  and  $33.80,  the  value 
of  neighbors'  time  and  time  of  regular  men  spent  on  Field 
No.  1  during  the  year  as  shown  in  the  Labor  Record  of 
Illustration  47.  Field  No.  1  is  properly  charged  with  all 
labor  performed  on  it,  whether  that  labor  is  paid  for  in 
cash  or  in  services. 

Exchange  Labor  for  Horses.— The  same  principles  and 
methods  presented  for  recording  exchange  labor  for  men 
apply  to  exchange  labor  for  horses.  One  Exchange  Labor 
account  is  used  for  recording  both  man  and  horse  labor 
exchanged  with  the  neighbors. 

The  horse  exchange  labor  is  recorded  in  the  horse  labor 
monthly  record  and  carried  to  the  yearly  horse  labor  sum- 
mary in  exactly  the  same  way  that  the  man  labor  is  (Illus- 
trations 46  and  47).  The  same  method,  the  parenthesis, 
is  used  for  designating  the  labor  performed  by  neighbors' 


te 


240 


FARM  ACCOUNTING 


horses.  A  fair  average  rate  for  horses  is  ten  cents  an 
hour. 

At  the  close  of  the  year  the  proper  accounts  are  debited 
direct  from  the  horse  labor  summary  for  the  year,  or 
through  journal  entry,  in  a  way  exactly  like  that  in  Illus- 
tration 48.  The  debits  expressed  are  taken  directly  from 
the  totals  of  the  several  columns  in  the  horse  labor  sum- 
mary for  the  year.  The  credits,  which  should  equal  the 
sum  of  the  debits,  are  taken  from  the  totals  in  the  lower 
right-hand  corner  of  the  summary.  The  amount  of  the 
total  in  parenthesis  is  credited  to  Exchange  Labor  account 
and  the  other  total  is  credited  to  Horses  account. 

Feed  Record. — The  quantities  of  corn,  oats,  hay,  barley, 
mill  feed  or  other  crops  or  products  fed  to  livestock  are 
recorded  in  a  feed  record  in  a  way  similar  to  the  entries 
in  the  labor  record.  It  is  not  considered  essential  in  prac- 
tical farming  to  make  a  notation  of  the  amount  fed  each 
day  to  each  class  of  animals.  Tests  can  be  made  from 
time  to  time  to  find  the  average  per  day.  This  can  be 
used  as  a  basis  for  the  month. 

However,  the  theory  is  the  same,  namely,  to  show  the 
value  of  each  class  of  feed  consumed  by  each  class  of  ani- 
mals so  that  an  entry  can  be  made  in  the  cash  journal  and 
ultimately  in  the  ledger  accounts  before  the  accounts  are 
closed  for  the  year.  The  value  of  all  products  fed  to 
animals  is  calculated  at  the  average  market  price  during 
the  month  in  which  they  are  fed  (See  Appendix). 

It  is  not  possible  to  make  the  feed  record  as  condensed 
as  the  labor  record,  unless  only  monthly  entries  are  made. 
In  that  case  it  is  necessary  to  have  two  tables,  one  for 
the  livestock  by  months  and  one  for  the  feed  by  months, 
as  in  Illustrations  49  and  50. 

In  these  illustrations,  the  values  only  are  recorded.  The 
quantities  may  be  recorded  in  any  convenient  form  in  the 
barns  or  in  the  house. 


COST  ACCOUNTING 

ILLUSTRATION  49 

Feed  Record  for  Year  Ended  Feb.  28,  1918 
Showing  Charges  to  Animals 


241 


Assuming  that  during  the  month  of  March  the  feed  con- 
sumed was  as  indicated  below,  the  entries  in  the  Feed 
Record  would  be  made  as  shown  for  the  month  of  March  in 
Illustrations  49  and  50.  By  Horses:  25  bu.^  corn  at  58c. 
($14.50) ;  2,500  lbs.  hay  at  $16  ($20) ;  10  bu.  oats  at  40c. 
($4) .  By  Cattle :  10  bu.  corn  at  58c.  ($5.80) ;  1,500  lbs.  hay 
at  $16  ($12);  120  pasture  days  at  5c.  ($6).  By  Swine: 
50  bu.  com  at  58c.  ($29) ;  40  pasture  days  at  5c.  ($2).  By 
Poultry:  100  lbs.  mill  feed  at  $1.30  ($1.30) ;  2  bu.  wheat 
at  $1.10  ($2.20).    By  Sheep:  600  pasture  days  at  5c.  ($30). 

Using  the  figures  given  above,  the  item  $23.80  under 
Cattle  for  March  in  Illustration  49  is  obtained  as  follows : 

Corn S5.80 

Hay 12.00 

Pasture ^6.00 


Total  for  March $23.80 


*See  Feed  Conversion  Table  in  the  Appendix,  Illustration  76. 


}■ 


ll) 


242  FARM  ACCOUNTING 

ILLUSTRATION  50 

Feed  Record  for  Year  Ended  Feb.  28,  1918 
Showing  Credits  to  Crops  or  Feed 


Month 

Corn 

Oats 

Wheat 

Hay 

Mill- 
Feed 

Pas- 
ture 

Total 

Mar. .. 

Apr 

May . . . 

$49  30 

$4.00 

$2.20 

$32.00 

$1.30 

$38.00 

$126.80 

1918 
Jan . . . 
Feb., . 

Total 
Value 


$200.00 


$100.00 


$40.00 


$200.00 


$50.00 


$200.00 


$790.00 


Similarly  from  the  data  presented  above,  the  item  $49.30 
under  Corn  for  March  in  Illustration  50  is  obtained  as  fol- 
lows : 

By  Horses $14.50 

By  Cattle 5  go 

By  Swine 29.00 

Total  for  March $49.30 

Debits  and  Credits  in  Feed  Record.— It  should  be  ob- 
served that  the  total  amount  charged  to  animals  for  feed 
should  always  be  the  same  as  the  total  credited  to  crops. 
In  Illustrations  49  and  50  the  total  of  each  is  $790. 

The  entry  to  record  the  values  on  the  books  as  given  in 
Illustrations  49  and  50,  is  in  the  form  shown  in  Illustra- 
tion 51. 


;  COST  ACCOUNTING  248 

ILLUSTRATION  51 
Journal  Entry  Made  from  Feed  Records  Feb.  28,  1918 

Cattle $130.00 

Hogs 200.00 

Horses 120.00 

Poultry 50.00 

Sheep 290.00 

790j00 

Com $200 .  00 

Oats 100.00 

Wheat 40.00 

Hay 200.00 

Mill  Feed 50. 00 

Pasture 200.00 

790J00 

It  is  noticed  that  the  journal  entry  is  in  balance  as  it 
should  be,  that  is,  the  sum  of  the  debits  is  equal  to  the  sum 
of  the  credits. 

Totals  may  be  posted  direct  from  the  feed  record  with- 
out making  journal  entries  first  if  the  feed  record  is  made 
in  permanent  book  form.  If  the  direct  posting  method  is 
followed,  care  should  always  be  exercised  in  balancing  the 
two  records.  That  is,  one  should  make  sure  that  the  sum 
of  all  charges  to  livestock  accounts  is  equal  to  the  sum  of 
all  credits  to  the  feed  and  crop  accounts. 

See  Illustrative  Problems  for  Chapters  VIII  and  IX,  at  the 
close  of  Chapter  IX. 


REVIEW  QUESTIONS 


1.  What  is  meant  by  a  cost  system? 

2.  What  is  cost  accounting? 

3.  State  three  fundamental  points  of  comparison  or  difference 

between  cost  and  general  accounting. 


I 


I 


244  FARM  ACCOUNTING 

4.  Under  what  conditions  is  the  general  system  of  accounting 

inadequate? 

5.  Why  are  cost  records  kept? 

6.  Discuss  the  collection  of  cost  data  as  to 

(a)  Source  and  nature  of  information, 

(b)  Method  of  recording  or  tabulating. 

7.  What  is  done  with  the  cost  data  after  collection? 

8.  Name  and  discuss  briefly  three  purposes  of  a  cost  system. 

9.  Describe  the  construction  and  use  of  the  monthly  labor  record, 

the  yearly  labor  record. 

10.  To  what  extent  may  it  be  said  that  the  yearly  labor  record 

expresses  debits  and  credits? 

11.  Discuss  the  practical  use  of  a  daily  labor  record. 

12.  If  a  flat  hourly  labor  rate  is  not  used,  how  may  the  cost  of 

labor  per  hour  be  calculated  in  any  case? 

13.  Describe  the  monthly  and  yearly  horse  labor  record,  pre- 

senting  points   of   similarity   or  difference  as   compared 
with  the  labor  record. 

14.  How  may  a  tractor  receive  proper  credit  for  its  work  on  the 

farm? 

15.  What  is  the  purpose  of  the  Exchange  Labor  account?  When 

is  it  debited?    When  credited? 

16.  Under  what  conditions  does  the  Exchange  Labor  account  have 

a  debit  balance?     A  credit  balance? 

17.  What  does  a  debit  balance  in  the  Exchange  Labor  account 

mean?     A  credit  balance? 

18.  Describe  a  means  of  recording  in  the  labor  record  exchange 

labor  for  the  neighbors  and  by  the  neighbors. 

19.  Why  is  it  proper  to  charge  a  crop  with  the  value  of  labor 

performed  on  it  by  neighbors? 

20.  Compare  the  treatment  of  horse  exchange  labor  with  man 

exchange  labor. 

21.  What  is  the  purpose  of  the  feed  record? 

22.  Describe  a  form  of  feed  record.    What  debits  and  credits  are 

expressed  therein? 


CHAPTER   IX 
COST  ACCOUNTING   (Continued) 

The  Farm  Plot. — A  plot  of  the  farm  is  a  convenient  and 
useful  record  to  have  on  a  farm.  It  is  especially  desirable 
for  use  in  connection  with  a  cost  system.  It  is  not  a  part 
of  the  accounting  system  proper,  but  may  be  sketched  in 
the  back  part  of  the  ledger  or  cash  journal. 

The  plot  may  be  elaborate,  or  it  may  be  merely  an  out- 
line sketch  drawn  roughly  to  some  convenient  scale,  show- 
ing the  general  dimensions,  size  and  shape  of  the  various 
fields,  cultivated  or  uncultivated.  Each  field  should  bear  a 
number  to  remain  unchanged  as  long  as  possible.  If  it  is 
necessary  to  divide  field  No.  4,  for  example,  into  two  parts, 
they  should  be  designated  as  4a  and  4b. 

From  the  viewpoint  of  farm  management,  the  plot  may 
be  used  for  a  number  of  purposes.  From  an  accounting 
viewpoint,  its  chief  advantage  lies  in  the  fact  that  it  'always 
presents  a  ready  reference  for  sizes,  numbers  and  locations 
of  fields.  If  the  plot  is  used  for  recording  rotations  of 
crops,  and  other  data  of  similar  importance,  it  may  serve  as 
a  means  of  comparing  unit  costs  of  production  under  vari- 
ous methods  of  farming. 

Field  Accounts — General. — As  mentioned  in  the  discus- 
sion of  Farm  Crops  in  Chapter  VI,  detailed  costs  of  pro- 
duction are  not  kept  in  the  crop  accounts,  but  in  accounts 
with  the  various  fields  in  which  the  crops  are  raised.  There 
are  three  principal  reasons  for  keeping  separate  accounts 
with  the  fields  and  crops. 

1.  To  afford  a  convenient  and  accurate  means  of  ac- 

245 


11 


1i 


I 


246 


FARM  ACCOUNTING 


counting  for  fertilizer  unused,  and  for  fall  plowing  and 
other  work  performed  on  a  field  when  such  work  is  not 
applicable  to  any  crop  of  the  current  year. 

2.  To  enable  one  to  find  the  unit  cost  of  production  on 
different  fields,  as  a  means  of  testing  the  relative  merits  of 
different  crop  rotations,  fertilizers,  methods  of  cultivation 
or  other  theories  of  management. 

3.  To  permit  the  complete  separation  of  one  year's  crop 
from  the  next,  when  it  happens,  as  is  often  the  case,  that 
one  year's  crop  is  not  all  disposed  of  before  the  next  one  is 
harvested. 

Field  Accounts — Contents. — Separate  accounts  are  kept 
with  each  field,  designated  by  number  as  indicated  by  the 
farm  plot.  A  field  account  is  charged  at  the  beginning  of 
a  fiscal  year  with  the  value  of  fertilizer  unexhausted  in  the 
field,  with  the  value  of  any  seed  sown  hut  not  yet  harvested, 
and  for  the  value  of  labor,  horse  labor,  use  of  equipment 
or  other  charge  for  services  or  expenses  incurred  on  the 
crop  in  the  ground  at  that  time.  The  items  enumerated 
constitute  what  is  known  as  the  field  inventory  or  deferred 
charges  carried  down  from  the  preceding  period. 

During  the  year  the  appropriate  field  account  is  charged 
with  all  expenses  for  seed,  fertilizer,  labor,  horse  labor, 
equipment  use,  general  expenses,  rent,  interest  on  invest- 
ment and  other  charges  incurred  during  the  period. 

The  appropriate  field  account  is  credited  at  the  close  of 
the  year  with  the  inventory  value  of  seed,  labor,  fertilizer 
and  other  items  debited  to  the  account  during  the  current 
year,  but  which  are  applicable  to  the  crop  of  the  succeed- 
ing year  or  years.  Any  balance  remaining  is  transferred 
to  the  appropriate  crop  or  feed  account  by  crediting  the 
field  and  debiting  the  crop  account.  This  entry  closes  the 
field  account  for  the  year.  The  inventory  of  charges  to  be 
carried  to  the  operations  of  the  succeeding  year  is  then 
brought  down  as  a  debit  balance  in  the  field  account. 


COST  ACCOUNTING 


247 


The  charges  for  labor,  horse  labor  and  other  items  men- 
tioned above  should  include  all  costs  up  to  the  time  the 
crop  is  ready  to  be  removed  from  the  field.  In  the  case  of 
small  grain  and  hay  or  forage  crops,  it  includes  the  cost 
of  cutting,  shocking  or  cocking.  In  the  case  of  corn,  it 
includes  all  costs  up  to  the  time  the  crop  is  ready  to  cut 
for  fodder  or  silage ;  or  to  husk. 

This  distinction  is  made  between  production  costs  and 
harvesting  costs,  so  that  production  costs  will  afford  a  more 
uniform  basis  for  comparison  of  one  year  with  another, 
thus  enabling  crops  used  for  several  different  purposes  to 
be  charged  properly.  For  example,  at  the  time  of  harvest- 
ing oats  in  one  year,  all  oats  may  be  stored  on  the  premises. 
In  another  year  a  large  part  of  them  may  be  hauled  from 
the  threshing  machine  to  market.  If  the  field  account  is 
charged  with  the  cost  of  harvesting,  it  would  be  charged 
with  more  the  second  year  than  the  first,  unless  the  difficult 
task  were  undertaken  of  separating  the  charge  for  hauling 
to  market  from  the  other  threshing  costs. 

In  the  case  of  oats  and  similar  grains,  the  Oats  account 
is  charged  with  the  total  cost  transferred  from  the  field. 
This  cost  includes  something  for  straw.  The  straw  should 
then  be  separated  from  the  oats  by  debiting  Straw  and 
crediting  Oats  account  with  a  fair  market  value  for  straw. 
Straw  account  is  then  considered  as  more  of  an  inventory 
account  from  which  no  profit  is  ordinarily  expected. 

Operation  of  Field  Accounts. — Under  the  principles  gov- 
erning the  contents  of  field  accounts  as  presented  above, 
the  question  sometimes  arises  as  to  just  when  and  how  the 
entries  should  be  made.  This  is  especially  true  in  the  case 
of  a  field  from  which  the  crop  is  harvested  about  the  middle 
of  the  fiscal  year,  and  it  is  desired  to  transfer  the  balance 
of  the  field  account  to  a  crop  account,  in  order  to  show  the 
cost  of  the  crop  before  it  is  fed  or  sold. 

It  might  be  said  here,  that  the  crop  is  fed  or  sold  at 


248 


FARM  ACCOUNTING 


» 


i; 


r 


!! 

I; 


i 


market  price;  hence  the  sale  can  be  made  and  entered 
without  knowing  what  the  cost  of  producing  the  crop  was 
until  the  close  of  the  year.  The  same  is  true  of  the  feed 
summary,  although  in  this  case  the  results  would  usually 
not  be  credited  to  the  crop  account  until  the  close  of  the 
year  anyway. 

As  an  example  of  the  way  a  field  account  is  operated  in 
connection  with  the  crop  account,  Illustration  52  presents 
a  typical  field  account,  figures  having  been  taken  from  an 
Illinois  farm  on  which  corn  is  produced.  It  also  presents 
the  Corn  account  affected  by  the  product  of  the  field. 

From  a  careful  analysis  of  Field  No.  5  and  Com  ac- 
counts presented  in  Illustration  52  the  use  of  the  two  ac- 
counts may  be  compared. 

Field  No.  5  account  is  charged  with  the  value  of  seed  at 
the  time  of  planting  and  with  fertilizer  at  time  of  applica- 
tion. All  other  charges  are  made,  at  the  close  of  the  fiscal 
year,  Feb.  28,  1918.  The  labor  and  horse  labor  charges 
come  from  the  yearly  labor  summaries,  while  the  interest 
and  equipment  expense  are  calculated  at  the  close  of  the 
year  and  constitute  part  of  the  closing  entry  at  that  time. 
At  the  time  of  harvest,  or  on  the  last  day  of  the  month  in 
which  the  harvest  was  completed,  theoretically,  an  entry 
should  be  made  crediting  the  Field  No.  5  account  and 
debiting  Corn  account  with  the  cost  of  production.  As  a 
matter  of  fact  the  complete  entry  is  not  made  at  that  time 
because  the  cost  cannot  be  determined  until  the  charges 
referred  to  above  are  made  at  the  close  of  the  year.  Ac- 
cordingly, at  the  time  of  harvest,  the  Field  account  is  cred- 
ited and  Corn  account  debited,  in  the  explanation  columns 
only,  with  the  number  of  bushels  harvested. 

When  the  total  costs  and  the  labor  and  fertilizer  inven- 
tories are  recorded,  the  cost  of  production  is  calculated  as 
being  the  amount  required  to  balance  the  field  account. 
This  amount,  $285.56,  in  Illustration  52,  is  placed  in  the 


COST  ACCOUNTING 


249 


credit  money  column  of  Field  No.  5  account  and  debit 
money  column  of  Corn  account  on  the  line  which  previously 
showed  only  the  number  of  bushels  transferred  from  the 
Field  to  the  Crop  account.  At  that  time  the  cost  of  pro- 
duction per  bushel  is  calculated  and  recorded  in  the  Field 
account  in  the  same  way  that  the  25.7  cents  is  shown  in 
Illustration  52.  This  cost  does  not  include  the  cost  of  husk- 
ing, as  that  is  charged  to  the  Corn  account.  The  25.7  cents 
represents  the  cost,  on  a  basis  of  which  one  might  sell  his 
crop  in  the  field. 

Operation  of  Crop  Accounts.— TAe  Corn  account  pre- 
sented in  Illustration  52,  typical  of  all  crop  accounts,  is 
charged  with  the  value  of  corn  on  the  farm  at  the  begin- 
ning of  the  fiscal  year.  It  is  charged  at  the  time  of  harvest 
with  the  number  of  bushels  from  each  field,  the  figures  be- 
ing placed  in  the  explanation  column.  The  other  charges 
are  posted  to  the  account  at  the  close  of  the  year,  at  which 
time  also  the  value  of  the  corn  harvested  from  the  several 
fields  is  recorded  in  the  money  column  on  the  debit  side  of 
Corn  account,  as  explained  above  in  the  discussion  of  Field 
No.  5  account.  The  value  of  corn  fed  to  livestock  is  cred- 
ited to  Corn  account  at  the  close  of  the  year  from  the  yearly 
feed  summary  or  from  the  journal  entry  prepared  from  the 
summary.  Any  sales  on  the  market  are  credited  at  the 
time  of  sale  or  at  least  are  recorded  in  the  cash  journal 
as  credits  to  Corn  account.  They  may  be  posted  at  the  close 
of  the  year.  The  inventory  entry  for  corn  on  hand  is  made, 
and  any  balance  remaining  in  the  account  thereafter  is 
transferred  to  Loss  and  Gain  account  at  the  close  of  the 
year. 

In  the  Corn  account  shown  in  Illustration  52,  it  may  be 
seen  that  three  fields  contributed  to  the  supply  of  corn. 

The  labor  and  horse  labor  charged  to  the  Corn  account 
represent  the  charge  for  husking.  These  charges,  together 
with  other  costs  shown  in  the  account  except  the  inventory 


250 


FARM  ACCOUNTING 


ILLUSTRATION  52 

Field  and  Crop  Accounts 

Field  No.  5 

i  i                  ^^^^ 

1917 

Apr.    1  Fertilizer 

$36.00 

Nov.  30  1109  H  bu.  to 

May    1  Seed 

5.10 

corn  a/c  at 

;                        1918 

25.7  cents. . 

$285.56 

Feb.  28  Labor  for  year 

$51.90 

1918 

Feb.  28  Horse     Labor 

Feb.  28  Labor  Invty.. 

$14.00 

1                                          for  year 

65.86 

Feb.  28  Horse    Labor 

!   1                      Feb.  28  Int.  on  Invest. 

Invty 

17.30 

1                                          for  year 

175.00 

Feb.  28FertiUzer   In- 

Feb. 28Eqiiip'tExp.. 

10.00 

ventory  

z 

27.00 

$343.86 

$343.86 

1918 

1                        Mar.   1  Labor  Invty. . 

$14.00 

II                         Mar.    1  Horse  Labor 

f                                       Invty 

17.30 

Mar.    1  Fertilizer    In- 

ventory   

t 

27.00 

at  the  beginning  of  the  year,  make  a  total  charge  of  $640.06, 
which  might  be  considered  as  the  cost  of  making  this  year's 
crop  available  for  sale  or  for  feeding  from  the  crib.  This 
amount  divided  by  the  1948.5  bushels  harvested  results  in  a 
per  bushel  cost  of  32.8  cents,  to  be  used  as  a  basis  for  figur- 
ing profit  per  bushel  if  sold  or  fed  from  the  crib.  If  sold 
at  the  elevator  the  32.8  cents  would  be  increased  by  the  per 
bushel  cost  of  hauling.  The  hauling  cost  is  regularly 
charged  to  Corn  account  through  the  labor  and  horse  labor 
records. 


Ul 


COST  ACCOUNTING 


ILLUSTRATION  b2— Continued 
Com  Account 


251 


1917 

1918 

Feb.  28Bal.onhand.. 

$656.00 

Feb. 

28  Fed  during 

yr. 

Nov.  30  From  field  No.  5 

per  feed  sum- 

(11091^ Bu.) 

285.56 

mary  

..$1,473.48 

Nov.  30  From  field  No.  6 

Feb. 

28  Inventory . 

...     510.00 

(752  Bu.) .... 

223.45 

Nov.  30  From  field  No.  8 

(87  bu.) 

32.20 

1918 

Feb.  28  Labor  for  year 

38.92 

Feb.  28  Horse  labor  for 

year 

33.66 

Feb.  28Equip'tExp.. 

4.50 

Feb.  28  Bldg.  Expense 

13.77 

Feb.  28  General      Ex- 

pense propor- 

tion   

8.00 

Feb.  28  To  Loss  &  Gain 

(net  gain  for 

year) 

687.42 

• 

» 

$1,983.48 

$1,983.48 

1918 

Mar.   1  Inventory $510.00 

Silage  Account. — ^When  corn  is  harvested  and  used  for 
silage,  it  is  necessary  to  make  entries  to  show,  among  others, 
the  following  facts : 

.  1.  That  the  Field  account  is  credited  with  the  cost  of 
producing  the  corn  used  in  silage. 

2.  That  Corn  account  is  credited  with  the  market  value 
of  the  com  used  in  silage. 


252 


FARM  ACCOUNTING 


3.  That  Silage  account  is  charged  with  the  market  value 
of  the  corn  used. 

In  order  to  show  these  facts  on  the  books,  it  is  necessary 
to  consider  the  com  used  in  the  silo  as  passing  through  the 
com  crib  and  being  sold  out  to  the  silo,  although,  as  a  mat- 
ter of  fact,  the  com  does  not  take  such  a  route  to  the  silo. 
This  gives  rise  to  the  following  series  of  entries,  then,  in 
charging  the  Silage  account  with  the  material  used. 

(a)  Debit  Corn  account  and  credit  the  proper  Field 
account  with  the  cost  of  producing  all  corn  in  the  field  as 
described  under  ''Operation  of  Field  Accounts.** 

(b)  Debit  Silage  account  and  credit  Corn  account  at 
September  market  price  with  the  quantity  of  corn  used  in 
silage.  This  quantity  can  be  estimated  quite  accurately 
from  the  number  of  rows  or  area  of  corn  used  and  the 
average  number  of  bushels  per  acre  in  that  field,  if  any  is 
husked. 

These  two  entries  (a)  and  (b)  leave  the  Field  account 
in  just  the  condition  it  would  have  been,  had  all  the  corn 
been  husked.  It  leaves  the  Corn  account  showing  just  the 
same  profit  it  would  have  shown,  had  all  the  corn  been  fed 
or  sold.  This  is  the  correct  way  to  leave  the  Corn  account, 
for  the  corn  used  for  silage  should  affect  the  corn  in  the 
same  way  as  does  corn  used  for  feed  in  any  other  form. 
The  only  difference  is  that  in  the  case  of  silage,  the  com 
is  not  husked  nor  placed  in  a  crib.  Nevertheless  it  should 
receive  full  credit,  as  a  crop,  for  all  the  corn  raised  on  the 
premises,  regardless  of  its  ultimate  use.  Also,  the  entries 
named  above  provide  for  charging  the  Silage  account  with 
the  proper  amount  for  the  com  that  enters  into  it. 

After  making  entries  (a)  and  (b)  as  described  above, 
the  Silage  account  stands  debited  with  the  value  of  the 
corn  at  September  market  price.  The  account  should  be 
charged  also  with  the  cost  of  filling  the  silo  from  the  time 
the  corn  is  taken  from  the  field.    The  cost  of  cutting  the 


COST  ACCOUNTING 


253 


corn  should  be  charged  to  Com  account  in  the  same  way 
that  cost  of  husking  would  be  charged.  These  entries  are 
made  in  the  regular  way  after  the  time  has  been  recorded 
in  the  man  and  horse  labor  records. 

These  two  elements,  then, — cost  of  the  corn  and  cost  of 
filling— constitute  the  direct  cost  of  silage.  To  these  must 
be  added  at  the  close  of  the  year,  through  proper  entries,  ^ 
any  charges  arising  from  depreciation  of  silo,  silage  cutter, 
rent,  or  interest  on  investment  in  silo,  and  a  proportion  of 
equipment  and  general  expense.  The  sum  of  these  charges 
is  the  cost  of  silage.  The  cost  per  ton  should  be  calculated 
in  order  to  have  the  latter  figure  to  use  as  a  basis  for  charg- 
ing the  silage  to  livestock. 

The  Silage  account  is  credited  through  the  feed  record 
with  the  value  of  silage  fed  to  livestock.  After  the  number 
of  tons  fed  has  been  determined  in  the  feed  record,  the 
value  is  found  by  multiplying  the  number  of  tons  fed  by 
the  cost  per  ton  as  determined  from  the  debit  side  of  Silage 
account.  Theoretically,  when  all  silage  has  been  fed,  thQ 
account  should  be  in  balance.  Practically,  there  will  usu- 
ally be  a  slight  balance  due  to  shrinkage,  or  to  error  in  esti- 
mating the  tons  produced  or  fed.  Any  balance  remaining 
in  the  account  when  no  silage  is  on  hand  should  be  charged 
to  General  Expense.  At  the  close  of  the  year,  any  silage  on 
hand  is  carried  down  as  an  inventory.  If  it  is  apparent 
that  the  quantity  expressed  by  the  book  value  at  the  close 
of  the  year  does  not  correspond  with  the  quantity  in  the 
silo,  an  adjustment  should  be  made  between  Silage  and 
General  Expense  account  in  such  a  way  as  to  bring  the 
Silage  account  into  harmony  with  the  physical  valuation 
of  the  silage. 

Fodder. — The  cost  of  corn  fodder  is  determined  and 
entered  in  the  same  way  as  described  for  silage,  being  car- 
ried through  Com  account  and  charged  to  fodder  at  mar- 
ket price  of  September  corn.    It  is  credited  at  the  cost  price 


254 


FARM  ACCOUNTING 


of  the  fodder  for  the  quantities  shown  in  the  feed  record. 

Seed  Account. — One  Seed  account  may  be  made  to  serve 
for  recording  values  of  all  classes  of  seed.  The  account  is 
used  to  show  the  value  of  seed  on  hand  at  any  time,  espe- 
cially at  the  close  of  the  year. 

It  is  charged  with  the  fair  market  value  of  seed  at  the 
time  it  is  sorted  from  the  regular  crop,  no  matter  whether 
it  is  com,  oats,  wheat,  clover  or  other  product.  The  proper 
crop  account  is  credited  at  that  time.  Seed  account  is 
credited  for  the  book  value  of  seed  used,  the  Field  account 
being  charged.  That  is,  if  seed  corn  has  been  charged  to 
the  Seed  account  at  $3  a  bushel  at  the  time  of  selecting 
seed,  the  Seed  account  is  credited  and  the  proper  Field 
account  debited  with  $3  a  bushel  at  the  time  of  planting. 

If  seed  unused  for  the  purpose  intended  is  fed  to  live- 
stock, the  Seed  account  is  credited  and  the  appropriate 
livestock  account  debited  with  the  market  price  of  the 
product  as  feed  and  not  as  seed.  This  would  naturally 
leave  a  debit  balance  in  Seed  account  after  all  the  seed  has 
been  used.  Any  balance  remaining  in  the  account  may  be 
closed  into  General  Expense  whether  the  balance  be  a  debit 
or  a  credit. 

The  Household  and  Farm  Products. — It  has  been  stated 
elsewhere  that  the  Household  should  be  charged  with  the 
farm  value  *  of  farm  products  used.  As  a  Inatter  of  practi- 
cal application  this  statement  might  be  modified  to  read 
'*the  household  should  be  charged  with  all  milk  and  eggs 
produced  on  the  farm  and  with  all  garden  expenses,  and 
with  such  other  farm  products  as  are  used  in  the  house. ' ' 

The  exceptions  made  in  the  case  of  milk,  eggs  and  gar- 
den are  explained  best  by  a  slight  analysis  of  conditions. 
In  general  they  are  made  in  order  to  reduce  the  detail 
required  in  keeping  track  of  small  quantities  used  by  the 
household. 

'Farm  value  means  market  price  minus  cost  of  marketing. 


COST  ACCOUNTING 


255 


Milk. — The  Household  should  be  charged  and  Cattle 
credited  with  the  value  of  all  milk  produced,  provided  the 
production  of  milk  is  merely  incidental  to  the  main  objects 
in  farming.  If  any  substantial  amount  of  milk  or  cream  is 
sold,  the  statement  above  would  not  apply. 

When  all  milk  is  charged  to  the  Household,  it  follows 
that  the  Household  should  be  credited  for  any  milk,  cream 
or  butter  subsequently  sold.  Also,  the  Household  is  cred- 
ited, and  the  Poultry,  Swine  or  Cattle  charged  with  any 
skim-milk  or  butter-milk  fed  to  the  chickens,  pigs  or  calves. 
The  entries  for  the  production  of  milk  and  for  the  milk 
products  fed  to  livestock,  are  made  only  once  a  month.  In 
the  meantime,  memoranda  are  made  to  show  quantities  pro- 
duced or  fed. 

Eggs. — ^At  the  time  of  gathering  eggs,  a  memorandum 
should  be  made  showing  the  number  of  eggs.  At  the  close 
of  the  month  a  fair  average  market  value  is  placed  on  the 
eggs  and  an  entry  made  charging  Household  and  crediting 
Poultry  with  all  the  eggs  gathered  during  the  month.  If 
any  eggs  are  sold  from  the  premises,  the  Household  is  cred- 
ited, and  Cash  (presumably)  debited. 

This  treatment  places  the  burden  for  the  details  con- 
cerning eggs  upon  the  household.  It  can  very  often  be 
assigned  to  a  young  member  of  the  family,  thus  relieving 
farm  accounting  of  some  of  its  details. 

As  in  the  case  of  milk,  this  method  of  accounting  for  eggs 
applies  to  the  general  farm,  and  not  to  the  poultry  ranch. 

Garden. — Under  a  cost  system,  considerable  detail  can 
be  avoided  in  connection  with  the  garden  products  used,  if 
all  expenses  in  connection  with  the  garden  are  charged  to 
the  Household,  and  all  incomes  from  sale  of  garden  truck 
are  credited  to  the  Household.  "With  this  arrangement  it 
would  not  be  necessary  to  keep  a  record  of,  nor  make  en- 
tries for  the  garden  truck  used  by  the  house. 

The  Household  is  charged  with  the  cost  of  plowing,  plant- 


I 


^56 


FARM  ACCOUNTING 


COST  ACCOUNTING 


257 


ing,  cultivating,  etc.,  and  with  any  other  work  performed 
by  horses  in  the  garden  or  by  anyone  from  the  household 
whose  time  might  ordinarily  be  charged  to  Labor  account. 
It  is  also  charged  with  a  proportion  of  rent  or  interest  on 
investment,  with  equipment  expense  and  any  general  ex- 
pense that  might  be  pro  rated  over  the  area  occupied  by 
the  garden.  No  entry  is  required  when  garden  products 
are  used  in  the  house ;  but  the  household  is  credited  when 
any  products  are  sold  to  outside  parties. 

It  is  sometimes  better  to  keep  a  separate  account  with 
the  garden.  In  such  cases  the  Garden  account  is  charged 
with  all  the  elements  of  cost  enumerated  in  the  preceding 
paragraph.  It  is  credited  with  any  products  sold  to  out- 
siders, but  not  with  products  consumed  by  the  household. 
At  the  close  of  the  year  any  balance  is  closed  into  the 
Household  account.  Thus,  the  ultimate  result  is  exactly 
the  same  whether  the  charges  and  credits  are  carried 
through  the  Garden  account  or  made  in  the  Household 
account  direct. 

For  the  purpose  of  treating  a  garden  in  this  way,  the 
term  should  be  limited  to  include  only  the  plot  of  ground 
near  the  house,  designed  primarily  to  provide  for  the  needs 
of  the  household.  Any  special  plots  of  potatoes,  sweet 
corn,  melons,  or  other  products  ordinarily  found  in  a  gar- 
den, but  meant  in  any  particular  case  primarily  for  sale  on 
the  market,  should  be  treated  in  the  same  way  as  a  field 
producing  farm  crops. 

Pasture. — Following  the  general  principles  of  cost  ac- 
counting of  charging  all  expenses  and  crediting  all  incomes 
to  the  accounts  directly  affected,  it  is  necessary  to  treat 
pastures  in  somewhat  the  same  way  that  any  other  field  is 
treated.  However,  a  pasture  has  some  characteristics  of  a 
crop,  and  some  of  a  field.  Accordingly,  it  is  permissible 
to  have  the  Pasture  account  show  a  loss  or  gain,  while  it  is 
not  proper  for  a  field  account  to  show  a  loss  or  gain. 


The  Pasture  account  is  charged  with  any  deferred  debits 
carried  down  from  the  preceding  year,  such  as  cost  of  seed- 
ing, also  with  rent  or  interest  on  investment  and  any  other 
direct  or  indirect  costs  that  might  be  pro  rated  to  it  at  the 
close  of  the  year.  The  account  is  credited  with  the  feed 
obtained  from  it  by  the  livestock.  The  value  of  the  feed  is 
determined  by  considering  the  average  amount  that  an 
animal  can  consume  in  one  day.  Five  cents  a  day  for  an 
animal  is  considered  a  fair  market  value  for  pasture.  The 
term  pasture-day  is  used  in  this  connection.  It  means  the 
grazing  by  one  animal  for  one  day.  If  there  are  twenty 
cattle  in  a  pasture  for  each  day  of  a  standard  month,  there 
would  be  600  (20  x  30)  pasture  days  for  which  to  make  an 
entry.  Considering  a  pasture-day  as  valued  at  five  cents,^ 
there  would  be  expressed  a  debit  to  Cattle  and  a  credit  to 
Pasture  of  $30  for  the  use  of  the  pasture  for  the  month. 

By-Products. — An  account  called  "By-Products**  is  used 
for  the  purpose  of  recording  the  value  of  crop  residues  con- 
sumed in  the  field  by  livestock  after  the  crop  has  been 
harvested.  This  condition  arises  when  livestock  is  turned 
into  oats  or  wheat  stubble  or  into  corn  stalks  after  husk- 
ing. The  livestock,  obviously,  should  be  charged  for  the 
feed  they  obtain  in  this  way,  since  it  takes  the  place  of 
regular  pasture  or  other  feed.  The  question  arises  as  to 
what  account  to  credit.  The  account  with  **  By-Products  * ' 
is  the  one  which  shows  most  clearly  what  the  nature  of 
the  income  is.  It  cannot  be  called  an  income  from  the 
crop  for  the  crop  cannot  be  considered  as  contributing 
something  which  it  never  had.  If  the  crop  account  is  not 
charged  with  the  value  of  the  stubble  or  corn  stalks  it 
should  not  be  credited  when  the  latter  are  used  to  the  ad- 
vantage of  the  farm.     An  exception  to  the  use  of  this 

*  During  the  year  since  war  conditions  affected  prices  so  extensively, 
the  value  of  pasture  rental  is  nearly  double  the  figure  quoted  above. 


258 


FARM  ACCOUNTING 


COST  ACCOUNTING 


259 


account  is  found  in  the  case  of  a  second  growth  of  hay 
pastured. 

The  field  account  should  not  be  credited,  for  it  is 
merely  an  intermediate  account  for  the  purpose  of  ac- 
cumulating costs  of  production  to  transfer  to  the  crop 
accounts,  and  for  taking  care  of  deferred  charges  for 
labor,  fertilizer  and  so  on.  It  is  not  the  nature  of  the  field 
that  caused  the  livestock  to  be  turned  into  it.  It  is  the 
managing  ability  of  the  farmer.  As  such,  his  ability  to 
take  advantage  of  by-products  of  the  fields  should  be  re- 
corded in  a  separate  account  where  its  results  may  be 
seen  in  the  aggregate,  at  the  close  of  each  year.  The  bal- 
ance of  the  By-products  account  is  closed  into  Loss  and 
Gain  account  at  the  close  of  the  year. 

The  value  of  the  feed  obtained  by  livestock  in  stubble 
fields  or  corn  stalks  is  determined  in  the  same  way  as  the 
value  of  ordinary  pasture  feed. 

Rent  Distribution. — ^When  farm  rent  is  considered  as  an 
element  increasing  the  cost  of  production,  it  is  essential 
that  the  total  rent  should  be  distributed  over  the  farm 
elements  on  a  reasonable  basis.  The  time  and  method  of 
distributing  rent  are  the  two  important  factors  that  need 
special  consideration. 

As  for  the  time  of  making  the  entry,  it  may  be  said 
that  the  best  time  is  at  the  beginning  of  the  year  when  the 
lease  becomes  effective. 

The  method  of  distributing  the  rent  depends  upon  the 
nature  of  the  lease,  whether  it  is  on  (a)  a  cash  or  (b)  share 
rent  basis. 

(a)  Under  the  cask  rent  basis,  it  is  definitely  known 
what  the  total  rent  is.  The  rent  per  acre  of  tillable  and 
pasture  land  can  he  calculated,  also  the  rent  of  the  build- 
ings and  barnyard.  After  the  total  for  each  field,  and  for 
the  buildings,  has  been  determined,  an  entry  is  made 
crediting  Notes  Payable  and  charging  the  several  field  ac- 


U 


counts,  Pasture,  Swine,  Poultry,  Cattle,  Horses,  Corn  and 
Household,  each  with  its  pro  rata  share  of  rent.  Each  class 
of  livestock  is  charged  with  the  estimated  rent  of  the  build- 
ing or  buildings  it  uses.  The  household  is  charged  with 
the  rent  of  house  and  garden.  Corn  or  other  crop  account 
is  charged  with  the  pro  rated  amount  for  use  of  cribs, 
granaries,  etc.,  used  for  storage  purposes.  Equipment 
Expense  account  may  be  charged  with  an  amount  to  repre- 
sent the  use  of  machine  sheds. 

The  entry  suggested  above  indicated  a  credit  to  Notes 
Payable.  This  assumes  that  notes  are  given  for  the  amount 
of  the  rent  at  the  time  of  signing  the  lease.  If  no  notes 
are  given,  the  landlord's  account  is  credited  instead  of 
Notes  Payable.  When  notes  for  rent  are  given  before  the 
beginning  of  the  year  to  which  they  apply,  Notes  Payable 
is  credited  and  *'19 —  Rent"  account  debited.  The  latter 
account  is  then  considered  as  a  deferred  resource  until  the 
beginning  of  the  fiscal  year  to  which  it  applies.  At  the 
beginning  of  the  year,  under  the  last  named  conditions, 
the  **19 —  Rent"  account  is  credited  and  the  several  fields, 
livestock  and  other  accounts  charged  as  described  in  the 
preceding  paragraph. 

The  *'19 —  Rent"  account  is  made  to  fit  the  year  of  the 
operations  to  which  it  applies.  For  example,  when  a 
lease  is  signed  and  notes  given  in  November,  1916,  for  the 
fiscal  year  beginning  March  1,  1917,  the  amount  of  the  rent 
is  charged  to  **1917  Rent"  account. 

(b)  Under  the  share  rent  basis  it  is  not  definitely  known 
what  the  total  rent  is  for  the  year.  Accordingly,  it  pre- 
sents a  very  complex  situation  unless  one  resorts  to  esti- 
mates and  makes  entries  similar  to  those  explained  for 
cash  rent,  above. 

The  following  procedure  is  suggested  as  the  most  prac- 
tical under  the  ordinary  share  rent  agreement: 

At  the  beginning  of  the  year  to  which  the  lease  applies, 


li 


260 


FARM  ACCOUNTING 


an  entry  is  made  crediting  Rent  Adjustment  account  and 
debiting  the  fields,  livestock,  household  and  other  accounts 
in  the  same  manner  as  for  cash  rent.  The  amount  to 
charge  to  each  is  determined  according  to  a  fair  cash 
rental  basis  for  the  same  farm. 

As  crops  or  livestock  are  disposed  of  the  appropriate 
crop  or  livestock  account  is  credited  for  the  total  sale, 
the  Rent  Adjustment  account  being  debited  with  the  land- 
lord's share  (if  he  takes  the  cash  direct  from  the  sale  or 
if  it  is  deposited  in  the  bank  to  his  credit),  and  cash  being 
debited  for  the  tenant 's  share  of  the  sale.  If  the  cash  for 
the  entire  sale  remains  in  the  hands  of  the  tenant  tem- 
porarily, he  debits  cash  for  the  entire  amount  received,  at 
the  same  time  debiting  Rent  Adjustment  and  crediting  the 
landlord  for  the  latter 's  share.  Later,  he  credits  Cash 
and  debits  the  landlord  as  payment  is  made  to  the  lat- 
ter, thus  leaving  both  the  Cash  and  Landlord's  account  in 
the  same  condition  as  if  the  landlord  had  taken  the  cash 
at  the  time  of  sale. 

This  process  of  charging  the  Rent  Adjustment  account 
is  repeated  as  often  as  sales  occur  during  the  year,  thus 
decreasing  the  credit  balance  of  Rent  Adjustment  account 
from  time  to  time.  In  a  good  year,  the  credit  balance 
would  probably  be  reduced  to  Zero,  and  a  debit  balance 
accumulated  as  a  result  of  sales.  This  would  mean  that 
the  amount  of  the  rent  was  in  excess  of  what  the  fair  aver- 
age cash  rent  would  have  been  in  that  year.  At  the  close 
of  the  year,  any  debit  balance  of  this  nature  remaining  in 
the  account  would  be  closed  into  Loss  and  Gain  account. 
It  is  an  undistributed  loss  to  be  set  against  all  the  income 
from  the  year.  It  should  not  be  considered  as  increasing 
the  cost  of  production  of  any  crop  or  class  of  livestock. 

Similarly,  if  crops  are  poor,  so  that  the  Rent  Adjustment 
account  has  a  credit  balance  at  the  close  of  the  year,  such 
credit  should  be  closed  into  Loss  and  Gain  account,  ap- 


l 


COST  ACCOUNTING 


261 


pearing  therein  as  an  unexpected  income — a  sort  of  rebate 
because  of  poor  crops  or  poor  prices.  It  should  not  be 
credited  to  the  several  crop  accounts  to  reduce  their  cost 
of  production.  The  cost  of  production  is  an  element  that 
should  not  vary  with  the  selling  price  of  the  commodities 
produced. 

It  is  because  of  the  fact  stated  in  the  preceding  sentence 
that  share  rent  is  treated  in  the  way  presented  in  the  sev- 
eral preceding  paragraphs.  If  any  other  method  were 
used,  it  would  usually  result  in  waiting  until  a  sale  was 
made  before  charging  a  crop  account  with  the  rent.  The 
rent  so  charged  would  vary  so  much  from  year  to  year, 
that  there  would  be  no  sound  basis  for  comparison  of 
production  costs  in  a  given  field,  one  year  with  another. 
Likewise,  there  would  be  no  reasonable  basis  for  compar- 
ing production  costs  on  a  share-rent  farm  with  a  cash-rent 
farm,  or  with  one  operated  by  the  owner. 

The  foregoing  treatment  of  share-rent  assumes  that  the 
tenant  owns  all  equipment  and  livestock.  It  also  assumes 
that  the  sales  of  crops  and  livestock  are  made  to  about 
the  same  extent  in  each  fiscal  year.  That  is,  it  assumes 
that  about  the  same  proportions  of  the  total  crops  and 
total  livestock  are  sold  before  calculating  the  loss  or  gain 
of  each  year. 

If  the  latter  assumption  were  not  made  the  balance  of 
Rent  Adjustment  account  would  not  show  the  difference 
between  the  normal  cash  rent  and  the  actual  share  rent 
of  the  year.  It  would  reflect  largely  the  selling  policies, 
being  influenced  considerably  in  any  year  in  which  crops 
were  held  over  into  the  succeeding  year,  for  better  prices. 

If  the  landlord  owns  half  of  the  livestock,  half  of  the 
equipment  or  both,  only  the  tenant's  share  of  such  live- 
stock and  equipment  is  recorded  in  the  books  of  the  tenant. 

Under  such  conditions  the  Equipment  Expense  account 
is  debited  at  the  beginning  of  the  year  with  an  amount  to 


■ 


262 


FARM  ACCOUNTING 


represent  the  use  of  the  landlord  *s  equipment.  This  makes 
it  possible  to  have  about  the  same  amount  of  equipment 
expense  to  charge  to  the  various  fields  as  when  the  tenant 
owns  all  of  the  equipment.  As  a  result,  the  cost  of  pro- 
ducing crops  on  a  share  rent  farm  can  be  compared  on  a 
common  detailed  basis  with  the  cost  on  a  cash  rent  farm 
or  on  one  operated  by  the  landlord. 

Equipment  Expense. — It  has  been  fairly  established  by 
experiment  that  the  use  of  a  machine  on  a  field  or  other 
farm  element  is  nearly  in  proportion  to  the  number  of 
horse  hours  spent  on  that  field  or  farm  operation.  ^  For 
example,  if  the  horse  labor  record  shows  that  horses  worked 
10,000  hours  during  a  given  year,  and  that  1000  of  those 
hours  were  charged  to  Field  No.  1,  then  Field  No.  1  should 
bear  1/10  (1,000^10,000)  of  the  wear  on  that  class  of 
equipment  drawn  by  horses.  This  rule  results  in  a  very 
fair  distribution  of  machine  charges  over  the  different 
farm  elements. 

An  account  is  kept  with  Equipment  Expense.  To  this 
is  charged  all  repairs,  depreciation,  interest  on  investment 
and  other  expenses  in  connection  with  upkeep  of  farm 
equipment.  At  the  close  of  the  year  the  debit  balance  of 
the  account  is  ascertained  preparatory  to  distributing  it 
over  the  farm  elements.  For  effecting  such  distribution, 
the  total  horse  hours  worked  by  the  proprietor's  horses, 
as  per  horse  labor  summary  for  the  year,  is  divided  into 
the  balance  of  the  Equipment  Expense  account.  This 
gives  the  machine  cost  per  hour  to  be  charged  over  the 
various  accounts  shown  on  the  horse  labor  summary.  This 
cost  per  hour  is  multiplied  by  the  number  of  hours  charged 
against  each  account.  It  assumes  that  for  every  hour  a 
horse  works  on  some  farm  element  some  equipment  is  used 
also. 

*By  permission  of  Mr.  F.  A.  Pearson,  Dairy  Husbandry  Dept., 
University  of  Illinois  Agricultural  Experiment  Station. 


COST  ACCOUNTING 


ILLUSTRATION  53 

Yearly  Horse  Labor  Summary  Used  as  a  Basis 
FOR  Distributing — ^Equipment  Expense 


263 


House- 
hold 

Swine 

Gen- 
eral 
Exp. 

Cattle 

Field 
No.  1 

Field 
No.  5 

Total 

Mar 

Apr 

73 

74 

25 
26 

26 
35 

8 
12 

240 

30 

132 
417 

etc.  for  year 

Total    Hours 
f or  yr 

Total  Cost 
for  yr,  for 
Horse  Labor 

Cost  for  Equip- 
ment use . 


1,160 


SI  16.00' 


410 


$41.00 


$58.00  S20. 50 


530 


$53.00 


$26.50 


415 


$41.50 


$20.75 


802 


$80.20 


$40.10 


683 


$68.30 


$34.15 


4,000 


$400.00 


$200.00 


'See  "Horse  Labor  Record,"  page  232. 

For  example,  if  the  horse  labor  record  for  the  year  shows 
the  totals  indicated  in  Illustration  53,  and  the  balance  of 
Equipment  Expense  account  is  $200  at  the  close  of  the 
year,  the  machine  cost  per  hour  is  $200  divided  by  4000, 
or  5  cents.  This  means  that  for  every  hour  horses  are 
used  in  connection  with  a  farm  element,  such  element  is 
responsible  for  5  cents'  worth  of  repairs,  depreciation  and 
interest  on  the  equipment. 

Applying  this  5  cent  rate  to  the  farm  elements  recorded 
in  the  yearly  Horse  Labor  Summary  of  Illustration  53, 
the  household  is  charged  with  1160  times  .05,  or  $58,  for  the 
use  of  equipment  during  the  year.    Likewise,  the  other  ele- 


264 


FARM  ACCOUNTING 


ments  using  horse  labor  during  the  year  are  charged  at  a 
rate  of  5  cents  for  every  hour  horses  were  employed  there- 
on, in  order  to  have  each  element  bear  its  share  of  the 
cost  of  maintaining  equipment. 

The  several  charges  for  equipment  use  can  be  conven- 
iently recorded  in  the  yearly  horse  labor  summary  as 
shown  in  Illustration  53,  where  the  $58  charge  to  house- 
hold, the  $20.50  charge  to  swine  and  other  corresponding 
charges  are  shown  at  the  foot  of  the  illustration.  The 
total,  $200,  in  the  lower  right-hand  space  represents  the 
total  cost  in  connection  with  equipment.  The  figures  on 
the  bottom  line,  just  mentioned,  express  debits  and  credits, 
and  as  such  may  be  posted  direct  from  the  Horse  Labor 
Summary  to  the  debit  of  the  accounts  named  at  the  tops 
of  the  respective  columns,  and  to  the  credit  of  Equipment 
Expense  account. 

The  yearly  Horse  Labor  Summary,  then,  as  presented  in 
Illustration  53,  may  be  used  at  the  same  time  as  a  posting 
medium  for  charging  various  accounts  with  the  cost  of 
horse  labor  and  the  use  of  equipment.  It  should  be  noted, 
therefore,  that  the  amounts  in  the  line  next  above  the  bot- 
tom line  represent  the  cost  of  horse  labor  on  the  farm  ele- 
ments named  at  the  tops  of  the  columns.  The  sum  of 
these  charges  for  horse  labor  should  equal  the  amount 
credited  to  the  Horse  account.  In  the  illustration  under 
discussion,  $400  is  credited  to  Horse  account  and  $200  to 
Equipment  Expense  account.  The  latter  credit  should 
close  Equipment  Expense  account  for  the  year  unless  frac- 
tional parts  of  a  cent  are  dropped  in  making  calculations. 
The  credit  to  Horse  account  closes  the  latter  after  the 
inventory  is  considered,  unless  a  flat  rate  of,  say,  10  or 
12  cents  an  hour  is  used. 

One  very  essential  point  is  to  be  observed  in  using  the 
horse  labor  summary  as  a  means  of  distributing  equip- 


COST  ACCOUNTING 


265 


k '  _ 


ment  expense.  It  is  that  the  horse  labor  figures  should 
he  calculated,  and  the  amounts  posted  to  the  several  ledger 
accounts  before  any  attempt  is  made  to  calculate  even 
the  total  of  equipment  expense.  This  is  because  all  of  the 
expenses  in  connection  with  equipment  are  not  in  the 
Equipment  Expense  account  until  the  cost  of  horse  labor  on 
equipment  has  been  posted  from  the  horse  labor  summary. 

When  all  the  necessary  charges  for  the  year  have  been 
made  in  the  Equipment  Expense  account,  then  the  dis- 
tribution of  such  expense  is  made  over  the  several  farm 
elements  as  indicated  in  Illustration  53  and  as  described 
above.  After  the  distribution  is  made  in  the  Horse  Labor 
Summary,  the  items  are  posted  to  the  accounts  affected. 

The  method  of  calculating,  recording  and  distributing 
Equipment  Expense  as  described  above  includes  all  ex- 
penses in  connection  with  equipment,  both  that  drawn  by 
horses  and  that  used  entirely  by  hand.  In  other  words 
it  includes  hand  tools.  Theoretically  it  should  not.  Prac- 
tically, however,  distributing  expenses  of  hand  tools  on  a 
basis  of  horse  hours  is  justified  very  largely  because  such 
tools  are  used  for  repairing  horse  drawn  equipment.  Any 
expense  on  tools  not  so  used  is  so  small  that  the  distribu- 
tion explained  above  may  be  used  for  all  equipment  ex- 
pense without  fear  of  distorting  the  results.  Its  simplicity 
warrants  its  use  without  modification. 

Work  Horses  and  Other  Horses. — A  distinction  is  some- 
times made  between  the  cost  of  keeping  Work  Horses  and 
the  cost  of  keeping  Other  Horses.  Such  distinction  is  not 
necessary  on  the  average  farm  where  only  enough  colts 
are  raised  or  extra  horses  kept  to  insure  the  keeping  of 
work  up  to  a  general  standard,  without  unwarranted  delay 
during  rush  seasons  of  the  year. 

Work  Horses  are  kept  for  the  purpose  of  assisting  in 
the  general  farming  operations.  Work  Horses  account  is 
charged  with  the  cost  of  keeping  horses  that  do  farm  work 


S66 


FARM  ACCOUNTING 


at  any  time  during  the  year.  Such  expenses  of  mainte- 
nance are  ultimately  charged  to  the  farm  elements  through 
the  yearly  Horse  Labor  Summary. 

Other  Horses  are  kept  primarily  for  the  purpose  of  mak- 
ing a  profit  from  their  sale.  Other  Horses  account  is 
charged  with  the  cost  of  keeping  horses  that  are  not  raised 
as  work  animals.  Expenses  charged  to  Other  Horses  are 
absorbed  at  the  time  of  sale ;  if  not,  the  account  shows  a 
loss.  A  profit  results  when  the  sale  price  of,  or  other  in- 
come from  Other  Horses  exceeds  the  cost  of  raising  or 
maintaining  them  after  considering  the  inventories  at  the 
beginning  and  close  of  the  year.  The  balance  of  the  ac- 
count with  Other  Horses  is  closed  into  Loss  and  Gain 
account. 

Deferred  Charges. — There  is  a  class  of  inventory  used 
in  cost  accounting  which  does  not  represent  specific  units 
of  property  that  can  be  enumerated.  The  items  in  this 
class,  however,  are  inventories  in  the  sense  that  they  are 
*'sold*'  from  one  period  to  the  next.  They  are  better 
known  as  ** deferred  charges.'* 

An  example  of  such  a  deferred  charge  is  fertilizer  ap- 
plied to  a  field  and  charged  to  it  on  the  books.  If  the 
entire  cost  of  the  fertilizer  were  considered  as  an  expense 
of  that  field  or  crop  in  the  year  in  which  it  is  applied, 
the  current  year's  crop  would  be  charged  with  something 
it  did  not  use.  For  the  same  reason  the  following  year's 
crop  would  get  the  use  of  something  for  which  it  would  not 
be  charged.  In  order  to  place  the  charges  where  they  be- 
long, the  value  of  fertilizer  unexhausted  at  the  close  of 
the  year  is  determined  with  reasonable  accuracy  and 
'*sold''  to  next  year's  crop.  The  **sale"  is  recorded  in 
the  same  way  as  the  inventories  of  livestock,  namely,  a 
credit  above  the  double  lines  and  a  debit  below. 

Other  common  deferred  charges  are  interest  or  insurance 
premiums  paid  in  advance.     For  the  average  farmer  the 


i, 


COST  ACCOUNTING 


267 


latter  two  are  of  so  little  importance  that  they  can  be  ig- 
nored. If,  however,  a  three-year  fire  insurance  policy  is 
held,  arrangement  should  be  made  to  charge  only  one-third 
of  the  total  premium  against  the  operations  of  each  of  the 
three  years. 

Manure. — The  several  classes  of  livestock  are  given 
credit  for  the  value  of  the  manure  produced  during  the 
year.  As  the  manure  is  hauled  from  the  barn  yard,  the 
proper  field  accounts  are  charged.  A  fair  value  to  place 
on  manure  for  purposes  of  these  debits  and  credits  is  one 
dollar  a  ton.  ^ 

If  practically  the  same  quantity  of  manure  is  produced 
and  hauled  during  a  given  year,  the  entries  stated  above 
charging  the  field  accounts  and  crediting  the  livestock  ac- 
counts are  sufficient.  When  any  considerable  amount  is 
produced  in  excess  of  the  amount  hauled  away,  such  ex- 
cess should  be  considered  as  a  deferred  charge  or  inventory 
for  the  proper  livestock  account.  In  this  way  the  live- 
stock account  is  credited  with  it  in  the  year  of  its  pro- 
duction, and  it  is  brought  down  in  the  account  below  the 
double  lines  after  closing,  in  the  same  way  as  the  inven- 
tory of  livestock.  The  inventory  thus  carried  down  to  the 
debit  side  of  the  appropriate  livestock  account  will  be 
balanced  by  a  credit  entry  when  the  manure  is  hauled 
away. 

As  mentioned  under  the  subject  ''Deferred  Charges,"  a 
given  application  of  manure  is  not  a  cost  of  raising  one 
crop  but  several  crops.  It  has  been  ascertained  ^  that  of 
an  application  of  manure  40%  is  consumed  by  the  first 
year's  crop,  30%  by  the  second,  20%  by  the  third  and 
10%  by  the  fourth. 

Extraordinary  Losses  and  Gains. — There  are  some  ex- 
penses and  incomes  on  a  farm  that  cannot  be  assigned  di- 

*U.  S.  Dept.  of  Agriculture  Bulletin  511. 
'  Montana  Agricultural  College  Circular  43. 


268 


FARM  ACCOUNTING 


i 


rectly  to  any  of  the  so-called  productive  elements.  They 
are  closed  into  Loss  and  Gain  account  direct,  instead  of 
being  distributed  over  various  other  accounts  first.  Fire 
Loss,  which  has  been  discussed  in  Chapter  VII,  is  one  of 
these.  Others  are  commissions  earned  through  agencies 
of  various  sorts,  income  from  a  threshing  machine,  corn 
shredder  or  other  similar  outfit. 

If  a  farmer  acts  as  an  agent  for  silos,  automobiles  or 
some  other  articles,  any  commission  received  as  a  result 
of  such  agency  should  be  credited  to  an  appropriate  in- 
come account  until  the  close  of  the  year,  at  which  time  the 
balance  of  the  latter  account  is  closed  into  Loss  and  Gain 
account.    Commission  from  the  sale  of  silos,  for  example, 
is  credited  to  a  Silo  Commission  account  or  to  a  Miscel- 
laneous Income  account.    The  former  account  is  preferable. 
Any  expenses  incurred  in  connection  with  the  sales  are 
charged  to  the  same  account  that  receives  the  credit  for 
the  commission.     If  the  farmer  spends  ten  hours  during 
the  month  of  February  in  trying  to  sell  silos,  the  labor 
record  should  show  such  time  under  the  heading  *'Silo 
Commission '*   or   '* Miscellaneous   Income."    The   proper 
charge  would  be  made  from  the  labor  summary  to  the  ac- 
count named.    The  balance  of  the  Silo  Commission  account 
would  show  the  net  income  from  the  *'side  line,''  and 
would  be  closed  into  Loss  and  Gain  account.    A  Miscella- 
neous Income  account,  if  used  in  this  way,  might  contain 
several  different  classes  of  information.     If  so,  it  would 
have  to  be  analyzed  in  order  to  find  the  net  result  of  any 
specific  *'side  line.*' 

Interest  as  an  Element  of  Cost.— There  is  no  other  ele- 
ment of  cost  accounting  that  causes  so  much  discussion 
and  difference  of  opinion  as  the  question  of  interest.  Some 
consider  that  interest  is  an  element  of  cost  just  as  de- 
preciation is.  Others  consider  that  interest  is  a  distri- 
bution of  the  business  profits,  such  profits  having  been 


V 


COST  ACCOUNTING 


ILLUSTRATION  54 


269 


Loss  AND  Gain  Account  When  Interest  on  Investment  Has 

Not  Been  Charged  as  a  Cost  of  Production. 

(Other  Conditions  Same  as  in  Illustration  55) 

Loss  and  Gain 


Household $200 

Net  Gain   to   Capital 
Account 1,400 


$1,600 


Oats $300 

Corn 500 

Potatoes 400 

Swine 100 

Cattle 300 


$1,600 


determined  after  considering  all  elements  of  expense  ex- 
cept interest  on  investment. 

The  application  of  either  of  these  principles  gives  the 
same  result  in  the  end  as  far  as  the  net  addition  to  the 
Proprietor's  Capital  account  is  concerned.  The  difference 
between  the  two  methods  appears  in  the  relative  costs  of 
conducting  the  several  productive  elements  of  the  farm. 
If  all  productive  elements  required  the  same  capital  in- 
vestment in  land,  equipment  and  buildings  or  other  prop- 
erty, to  produce  a  given  net  income,  a  consideration  of 
the  element  of  interest  would  be  unnecessary  as  a  basis 
for  determining  which  farm  element  was  the  most  profit- 
able. 

As  a  matter  of  fact,  a  greater  investment  in  land,  build- 
ings or  equipment  is  required  to  produce  commodities  of 
a  given  value  from  one  productive  element  than  from 
another.  This  being  the  case,  it  is  reasonable  to  consider 
that  the  productive  elements  requiring  the  greatest  invest- 
ment should  be  charged  with  some  amount  to  represent  its 
relatively  greater  requirements  in  the  way  of  capital. 


K 


270 


FARM  ACCOUNTING 
ILLUSTRATION  55 


Loss  AND  Gain  Account  When  Interest  on  Investment  Has 

Been  Charged  as  a  Cost  of  Production 

(Other  Conditions  Same  as  in  Illustration  54) 

Loss  and  Gain 


Household ^200 

Net  Gain  to   Capital 
Account 1,400 


Oats 

Corn 

Potatoes 

Swine 

Cattle 

Int.  on  Invest 


$1,600 


$250 
400 
375 
60 
210 
305 

$1,600 


Illustrations  54  and  55  show  Loss  and  Gain  accounts  of 
a  farm  at  the  close  of  a  fiscal  year,  bringing  out  the  differ- 
ence in  results  when  interest  is  not  charged  as  a  cost  of 
production  and  when  it  is  so  charged. 

The  Interest  on  Investment  income  item  of  $305  in 
Illustration  55  arises  as  a  result  of  entries  charging  crop 
and  livestock  accounts  and  crediting  Interest  on  Invest- 
ment. The  charge  to  the  productive  elements  is  made 
through  Equipment  Expense,  Building  Expense  and  Gen- 
eral Expense  accounts. 

A  comparison  of  the  figures  in  Illustrations  54  and  55 
shows  that  the  net  income  from  each  of  the  various  produc- 
tive elements  is  less  in  the  latter  case  when  interest  is 
charged  as  an  element  of  cost.  The  total  decrease  in  in- 
come from  the  productive  elements  is  exactly  offset  by  a  cor- 
responding  increase  in  another  nominal  income  called  **  In- 
terest on  Investment. '*  The  total  income,  however,  is  the 
same,  $1600  in  each  case.    Examining  the  figures  further, 

it  appears  that  the  interest  charges  over  the  several  pro- 


COST  ACCOUNTING  271 

ductive   elements   in   the   farm   under   consideration,   in 
Illustrations  54  and  55,  were  as  follows: 

Oats ($300— $250)  $50 

Com ($500— $400)  100 

Potatoes ($4oo_$375)  25 

Swine ($100—  $60)  40 

Cattle ($300— $210)  90 

Total  Interest  on  Investment,  as  per 

Illustration  55 $305 


These  interest  charges  are  not  the  same  relatively  for  each 
productive  element,  hence  a  charge  for  interest  as  an  ele- 
ment of  cost  on  the  farm  in  question  is  justified.  Corn,  for 
example,  used  four  times  as  much  property  in  its  pro- 
duction as  did  potatoes.  Therefore  it  was  charged  with 
$100  for  the  interest  on  that  property,  while  potatoes  were 
charged  with  only  $25  for  interest  on  capital  used  in  their 
production. 

Labor  Income  and  Capital  Income.— It  is  sometimes 
stated  that  the  labor  income  (income  due  to  management) 
cannot  be  distinguished  from  capital  income  (income  as 
a  result  of  investing  capital  in  the  business),  unless  in- 
terest is  charged  as  part  of  the  cost  of  production. 

An  analysis  of  Illustrations  54  and  55  may  tend  to  in- 
dicate how  labor  income  of  the  farmer  is  distinguished 
from  capital  income  when  interest  is  not  considered  as 
an  element  of  cost.  Such  analysis  is  presented  in  Illustra- 
tions 56  and  57. 

It  is  noted  from  a  comparison  of  the  main  results  ob- 
tained in  Illustrations  56  and  57  that  when  interest  is  not 
charged  as  an  element  of  cost,  the  income  due  to  manage- 
ment, and  income  as  an  individual  can  be  obtained  readily 
by  a  simple  calculation  involving  only  the  items  in  the 


i,  I.I 


I 


272  FARM  ACCOUNTING 

ILLUSTRATION  56 

Labor  Income  and  Capital  Income  Determined  from  Loss 

AND  Gain  Account  of  Illustration  54  When  Interest 

Was  Not  Charged  as  a  Cost  of  Production 

Income  from  Oats ^ 

Income  from  Corn 

Income  from  Potatoes ^ 

Income  from  Swine ™ 

Income  from  Cattle ^^ 

Gross  Income ^^'^^ 

Less  Interest  on  Investment  (calculated  from  property 

accomits)^ 

Net  Income  as  a  farm  manager $1,295 

Less  Household  Expense 200 

$1,095 
Add  Interest  on  Investment ^^ 

Income  as  an  individual  including  both  interest  on 
investment  and  remuneration  for  management 
and  risk  above  laborer's  wage  previously  charged 
to  productive  elements $1,100 

>See  Interest  on  Land,  Interest  on  Buildings,  Interest  on  Livestock, 
and  Interest  on  Equipment,  post. 

Loss  and  Gain  account  and  the  aggregate  interest  on  capital 

investment. 

The  results  obtained  in  this  manner  (Illustration  56) 
are  the  same,  for  ''Income  as  an  individual"  and  "Income 
as  a  farm  manager,"  as  the  results  obtained  when  interest 
is  charged  in  the  accounts  as  an  element  of  cost  (Illustra- 
tion 57). 

In  both  cases,  the  net  income  from  management  is  $1295, 


COST  ACCOUNTING 


ILLUSTRATION  57 


273 


Labor  Income  and  Capital  Income  Determined  from  Loss 

AND  Gain  Account  in  Illustration  55  When  Interest 

Was  Charged  as  a  Cost  of  Production 

Income  from  Oats $250 

Income  from  Corn 400 

Income  from  Potatoes 375 

Income  from  Swine 60 

Income  from  Cattle 210 

Net  Income  as  a  farm  manager $1,295 

Less  Household  Expense 200 

$1,095 
Add  Interest  on  Investment 305 


Income  as  an  individual  including  both  interest  on 
investment  and  remuneration  for  management  and 
risk  above  laborer's  wage,  previously  charged  to 
productive  elements 


$1,400 


and  the  net  income  as  an  individual,  $1400.  These  figures 
are  based  on  the  assumption  that  the  household  is  charged 
with  an  amount  representing  interest  or  rent  on  the  house, 
even  when  the  productive  elements  are  not  charged  with 
interest  as  part  of  the  cost. 

Interest  on  Land. — Interest  on  land  being  a  fixed  charge, 
it  may  be  calculated  and  charged  to  the  various  accounts 
at  any  time  during  the  year.  Unless  impractical  in  any 
special  case,  it  is  better  to  credit  Interest  on  Investment 
account  at  the  beginning  of  the  year  and  debit  the  several 
fields,  General  Expense  or  Household  with  the  appropriate 
amounts.     Interest  is  figured  at  4%  on  the  value  of  the 


274 


FARM  ACCOUNTING 


COST  ACCOUNTING 


275 


land  as  shown  by  the  Land  account  at  the  beginning  of  the 
year  under  review. 

The  amount  of  interest  on  each  area  of  land  on  the  farm 
is  calculated  at  4%  '  for  the  year.  The  entries  are  then 
made  on  a  basis  of  the  amounts  so  calculated.  The  field 
accounts  are  charged,  each  with  its  amount;  the  House- 
hold or  Garden  is  charged  with  the  interest  on  the  area 
occupied  by  the  garden  and  house  yard;  and  General 
Expense  is  charged  with  the  amount  calculated  for  the 
barnyard  area.  In  addition  to  these  charges,  Swine 
are  charged  with  the  interest  on  the  hog  lot,  Orchard 
and  Timber  accounts  respectively  are  charged  with  inter- 
est on  the  tracts  of  land  occupied  by  them,  and  any  other 
farm  elements  having  exclusive  use  of  a  particular  area  of 
importance  are  charged  with  interest  on  the  areas  so  used. 

Interest  on  the  barnyard  area  is  charged  to  General 
Expense  because  the  latter  account  is  ultimately  distrib- 
uted over  the  productive  elements  of  the  farm.  It  is  con- 
sidered, for  this  purpose,  that  the  barnyard  is  for  the 
general  benefit  of  all  farming  operations. 

Interest  on  an  area  used  by  cattle  or  sheep  as  pasture 
is  not  charged  to  the  cattle  or  sheep  direct.  It  is  charged 
to  the  pasture,  such  charge  being  absorbed  by  the  cattle 
or  sheep  later,  when  they  are  charged  with  a  certain 
amount  per  pasture  day  as  explained  under  ** Pasture.*'^ 
The  hog  lot  could  be  treated  in  this  way  instead  of  the  way 
suggested  above. 

Interest  an  Buildings. — The  principles  governing  the 
calculation  of  interest  on  land  apply  also  to  interest  on 
buildings.  Such  interest  is  credited  to  Interest  on  In- 
vestment, and  charged  to  Building  Expense.  The  latter 
account  is  closed  into  the  accounts  of  the  farm  elements 
for  the  benefit  of  which  the  buildings  are  used. 

*See  Appendix. 
•Page  257. 


In  this  process  of  closing,  expense  on  the  house  is  charged 
to  the  Household ;  expense  on  a  hog  house,  to  the  Swine ; 
expense  on  a  horse  barn  to  the  Horses ;  expense  on  a  silo 
to  Silage;  expense  on  an  implement  shed  to  Equipment 
Expense ;  and  other  charges  in  accordance  with  these  prin- 
ciples. All  of  these  charges  except  Swine  and  Household 
are  ultimately  distributed  over  the  productive  elements — 
Silage  being  charged  out  to  the  livestock.  Equipment  Ex- 
pense to  the  crops,  through  the  field  accounts  and  so  on. 

Rent  versus  Interest. — The  tenant  farmer  does  not  con- 
sider interest  on  land  and  buildings  in  his  accounts.  The 
rent  paid  by  a  tenant  and  charged  to  the  various  farm 
elements,  as  explained  under  Rent  Distribution,  takes  the 
place  to  a  certain  extent  of  interest  as  charged  by  the 
landlord  operator. 

Rent  in  the  accounts  of  a  tenant  takes  the  place  of  In- 
terest on  Investment,  Building  Expense  including  insur- 
ance and  depreciation,  taxes  (on  Real  Estate),  and  a  few 
General  Expense  items  (as  fence  repairs)  in  the  accounts 
of  the  landlord  operator. 

Interest  on  Mortgaged  Property. — The  statements  made 
above  concerning  interest  on  land  and  buildings  apply 
to  such  properties  when  free  from  mortgage  obligations. 
When  the  property  is  mortgaged,  interest  paid  on  such 
mortgage  constitutes  a  charge  against  the  operations  of 
the  business.  Accordingly  the  procedure  in  the  case  of 
mortgaged  real  estate  or  equipment  is  modified  so  as  to 
avoid  charging  interest  twice  over  the  farm  elements. 

In  the  case  of  mortgaged  property,  the  same  procedure 
is  followed  as  in  the  case  of  unmortgaged  property,  hut 
there  is  also  one  additional  point  to  he  considered.  The 
additional  point  relates  to  the  method  of  handling  pay- 
ments of  interest  on  the  mortgage.  Interest  paid  on  a 
mortgage  is  debited  to  Interest  on  Investment  account 
either  at  the  time  of  payment  or  by  transfer  entry  from 


276 


FARM  ACCOUNTING 


COST  ACCOUNTING 


277 


Interest  on  Mortgage  account  at  the  close  of  the  year. 
This  leaves  the  accounts  of  the  productive  elements 
charged  with  the  same  amount  of  interest  that  they  would 
contain  if  there  were  no  mortgage  on  the  property.  In- 
terest on  Investment  account  having  a  credit  balance  will 
show  an  income.  The  income  shown,  however,  will  be  less 
than  if  the  mortgage  did  not  exist. 

Interest  on  Livestbck.— Both  the  landlord  and  tenant 
farmer  consider  interest  on  livestock  as  an  element  of  cost. 
In  either  case.  Interest  on  Investment  is  credited  and  the 
appropriate  livestock  account  charged  with  4%  on  the 
investment  at  the  beginning  of  the  year.  Fractional  parts 
of  a  year  may  be  considered  in  some  cases,  as  in  buying 
stock  to  feed  for  market.  The  interest  on  draft  animals  is 
ultimately  absorbed  by  the  productive  elements  when  the 
total  cost  of  maintaining  them  is  charged  over  the  several 
accounts  at  the  close  of  the  year,  as  explained  under 
* '  Horse  Labor  Record  "  and  * '  Exchange  Labor. ' ' 

After  charging  the  Swine  account,  for  example,  with 
interest  on  the  investment  in  swine,  use  of  the  buildings, 
feed,  laJbor  and  any  other  charges,  and  crediting  it  with 
income  of  all  sorts,  the  balance  of  the  account  {if  a  credit) 
shows  the  income  due  to  the  farmer  for  the  risk  involved 
and  to  compensate  him  as  a  manager.  He  has  already 
considered  his  compensation  as  a  laborer  by  the  regular 
charge  of  $600  for  the  year,  part  of  which  was  charged 
to  Sunne  account  through  the  labor  record.  If  the  account 
shows  no  balance,  it  means  that  he  has  been  compensated 
for  his  time  as  a  laborer,  and  for  his  investment,  but  that 
he  has  received  nothing  for  his  managing  ability,  nor  for 
his  risk  of  operation.  The  same  principles  would  apply 
to  cattle,  sheep  or  poultry. 

Interest  on  Equipment. — The  amount  of  interest  on 
equipment  is  charged  to  Equipment  Expense  account  and 
credited  to  Interest  on  Investment  Account.    Such  an  en- 


try is  made  at  the  close  of  the  fiscal  year  before  distribut- 
ing the  Equipment  Expense  over  the  various  farm  ele- 
ments using  equipment,  as  presented  in  Illustration  53. 

The  amount  of  the  interest  for  the  year  is  found  by  tak- 
ing 4%  of  the  value  of  equipment  at  the  beginning  of  the 
year.  In  special  cases,  it  is  permissible  to  consider  interest 
for  portions  of  a  year  when  expensive  pieces  of  machinery 
are  bought  during  the  year.  For  example,  if  $500  worth 
of  equipment  is  purchased  on  Sept.  1,  interest  at  4%  on 
$500  for  6  months  to  February  28  ($12.50)  may  be  con- 
sidered in  addition  to  the  interest  calculated  as  described 
above,  on  the  equipment  balance  at  the  beginning  of  the 

year. 

Another  way  of  calculating  interest  on  equipment  is 
to  take  40%  ^  of  the  charge  for  depreciation  as  shown  in 
the  Equipment  Expense  Account.  After  making  the  cal- 
culation in  this  way,  however,  the  entry  is  made  in  the 
same  way  as  when  the  amount  is  calculated  on  the  equip- 
ment value  itself. 

Interest  on  Working  Capital.— As  previously  stated,  in- 
terest on  land,  buildings,  livestock  and  equipment  is  con- 
sidered as  an  element  of  cost  largely  for  the  purpose  of 
charging  the  farm  elements  with  an  expense  proportion- 
ate to  the  amount  of  capital  used.  If  this  principle  were 
to  be  followed  out  in  detail,  it  would  be  necessary  to  charge 
the  several  farm  elements  with  interest  on  working  capital 
used  in  their  production. 

For  this  purpose,  working  capital  includes  the  amount 
of  capital  tied  up  in  the  production  of  a  crop  or  in  raising 
livestock,  aside  from  the  capital  invested  in  land,  build- 
ings, livestock  or  equipment.  Such  working  capital  in  the 
case  of  a  crop  is  best  illustrated  by  seed,  labor,  horse  labor 
and  other  elements  of  expense  incurred  in  sowing,  culti- 

» Calculation  derived  from  figures  presented  in  U.  S.  Dept.  of 
Agriculture  Bulletin  No.  338. 


^ 


i!  .1 


278 


FARM  ACCOUNTING 


m 


ii 
ii 


i' 


vating  and  harvesting  a  crop.  Similar  expenses  for  feed, 
labor,  and  miscellaneous  items  might  be  enumerated  in 
the  ease  of  livestock.  In  either  instance,  a  certain  amount 
of  capital  is  required  to  produce  a  crop  or  raise  livestock, 
aside  from  the  elements  of  property  previously  mentioned. 

Theoretically,  interest  on  the  capital  paid  for  labor,  feed 
and  other  items  should  be  charged  to  the  crops  or  livestock. 
Practically,  it  is  not  considered  of  sufficient  importance 
to  pay  for  the  time  and  difficulties  of  calculation.  For  a 
purely  scientific  investigation,  such  interest  should  be  con- 
sidered. For  practical  farming  purposes,  it  should  not  be 
considered,  as  its  relative  effect  upon  different  farm  ele- 
ments is  about  the  same. 

The  Process  of  Closing.— It  is  stated  in  the  discussion 
of  various  accounts  that  they  are  closed  at  the  end  of  the 
fiscal  year  into  other  accounts,  in  order  to  give  certain  re- 
sults. Such  statements  require  slight  explanation  in  order 
to  have  the  closing  made  without  confusion  of  entries  or 
accounts. 

The  principles  governing  the  closing  wnder  a  cost  sys- 
tem are  logical.  In  order  to  view  them  logically  one  has 
only  to  ask  himself  the  object  of  closing.  The  amswer  is: 
'*In  order  to  didribute  the  costs  of  production  over  the 
productive  elem£nts  on  the  farm.''  Such  a  distribution 
is  necessary  to  find  the  profit  from  the  operation  of  each 
productive  element,  the  incomes  having  been  credited  to 
the  proper  accounts  direct  at  the  time  they  arose. 

Expenses  in  farming  are  divisible  into  two  classes  (1) 
direct  and  (2)  indirect.  In  general,  direct  expenses  on 
any  productive  element  consist  of  those  that  have  a  defi- 
nite known  value  at  the  time  they  are  incurred.  Indirect 
expenses  on  any  productive  element  consist  of  those  whose 
value  is  not  known  or  certain  at  the  time  they  are  incurred. 
Examples  of  direct  expenses  are  man  labor,  horse  labor, 
seed,  fertilizer  and  similar  items  in  connection  with  crops; 


COST  ACCOUNTING 


279 


and  man  labor,  horse  labor,  feed  and  similar  items  in  con- 
nection with  livestock.  Indirect  expenses  are  represented 
by  such  items  as  depreciation,  interest  and  general  expense. 

Under  a  cost  system,  the  so-called  closing  entries  include 
those  made  for  the  purpose  of  distributing  the  indirect 
expenses  over  the  productive  elements.  In  addition,  there 
are  other  entries  which  are  recorded  only  once  a  year,  and 
which  form  part  of  the  process  of  closing,  but  which  do 
not  involve  indirect  expenses.  An  example  of  this  latter 
class  is  the  entry  made  at  the  close  of  each  year  debiting 
Labor  and  crediting  Household  for  the  value  of  the  family 
labor. 

General  Plan  of  Closing.— At  the  close  of  the  year  after 
completing  the  labor  and  feed  records  and  recording  the 
debits  and  credits  in  the  cash  journal  for  the  last  transac- 
tion of  the  last  day  of  the  fiscal  year,  the  next  step  is  to 
find  the  net  results  to  be  shown  by  the  mass  of  data  col- 
lected during  the  year.  Such  net  results  portray  the 
progress  during  the  year  as  shown  in  the  Loss  and  Gain 
account,  and  the  condition  at  the  close  of  the  year  as  shown 
in  the  Statement  of  Resources  and  Liabilities. 

The  general  plan  of  assembling  the  costs  in  the  proper 
accounts  in  the  ledger  may  be  outlined  as  follows : 

1.  Record  labor  of  the  family  for  the  year. 

2.  Take  an  inventory  and  record  it  in  the  Inventory 
Record  book. 

3.  Charge  interest  on  investment  and  depreciation  over 
the  productive  elements  through  the  accounts  Equipment 
Expense,  Building  Expense  and  so  on.  At  the  same  time, 
interest  on  livestock  is  charged  direct  to  the  proper  live- 
stock accounts. 

4.  Charge  feed  consumed  during  the  year  to  the  live- 
stock.    (This  entry  is  posted  from  feed  record.) 

5.  Charge  man  labor  and  horse  labor  over  the  various 
fann  elements. 


280 


FARM  ACCOUNTING 


6.  Charge  crop  accounts  with  the  cost  of  production,  as 
shown  in  the  several  field  accounts. 

7.  Charge  any  remaining  undistributed  expenses  or  costs 
over  the  productive  elements  through  General  Expense 
account. 

8.  Close  loss  or  gain  on  each  productive  element  or  **side 
line''  into  Proprietor's  Capital  account  through  Loss  and 
Gain  account,  bringing  down  the  inventory  in  each  pro- 
ductive account,  ready  to  start  the  next  year. 

Detailed  Procedure  in  Closing. — In  order  to  accomplish 
the  main  objects  in  closing,  it  is  necessary  to  follow  a 
given  definite  order  in  making  the  entries.  For  that  rea- 
son, the  following  details  are  suggested  in  connection  with 
closing : 

Presume  that  rent  or  interest  on  land  have  been  dis- 
tributed at  the  beginning  of  the  year,  as  suggested  under 
**Rent  Distribution,"  '* Interest  on  Land"  and  ''Interest 

on  Buildings." 

Beginning  after  the  last  entry  for  the  regular  transac- 
tions of  the  year  has  been  entered  in  the  cash  journal ;  and 
after  the  quantities  and  values  have  been  recorded  in  the 
labor,  horse  labor  and  feed  records,  perform  the  follow- 
ing operations: 

1.  Make  entry  in  cash  journal  debiting  Labor  and  cred- 
iting Household  with  the  value  of  labor  performed  by 
members  of  the  household,  including  the  operator,  in  con- 
nection with  farming  operations  ($600  a  year  for  each 
adult  is  a  conservative  figure  to  use  for  this  purpose). 

2.  Post  all  entries  from  the  cash  journal  to  the  ledger, 
including  totals  of  special  columns. 

3.  Take  a  trial  balance  of  the  ledger,  to  test  accuracy  of 
work  before  closing. 

4.  Inventory  all  equipment,  livestock,  products  and 
miscellaneous  supplies  and  enter  them  in  the  Comparative 


COST  ACCOUNTING 


281 


Inventory  Record,  as  explained  in  Chapter  6,  and  as  pre- 
sented in  Illustration  27. 

5.  Calculate  and  enter  interest  on  investment  for  the 

year,  as  follows : 

(a)  Calculate  interest  on  equipment  and  make  an  entry 
in  cash  journal,  debiting  Equipment  Expense  and  credit- 
ing Interest  on  Investment. 

(b)  If  a  landlord,  calculate  interest  on  buildings  and 
charge  Building  Expense,  crediting  Interest  on  Investment. 
Interest  on  land  is  charged  at  the  beginning  of  the  year 
as  explained  under  "Interest  on  Land,"  in  this  chapter. 

(c)  Calculate  interest  on  livestock,  charging  the  several 
respective  livestock  accounts,  crediting  Interest  on  Invest- 
ment. 

(d)  Calculate  and  enter  interest  on  any  special  equip- 
ment or  buildings  not  covered  by  (a)  and  (b)  above.  This 
includes  silos,  special  dairy  equipment  and  similar  units. 

6.  Calculate  and  enter  depreciation  on  property  for  the 
year  as  follows: 

(a)  Calculate  depreciation  on  equipment  and  make  an 
entry  in  the  cash  journal  debiting  Equipment  Expense  and 
crediting  Equipment. 

(b)  If  a  landlord,  calculate  the  depreciation  on  build- 
ings, debiting  Building  Expense  and  crediting  Buildings. 

(c)  Calculate  and  enter  depreciation  on  any  special 
equipment  or  buildings  not  covered  by  (a)  and  (b)  above. 
This  includes  silos,  special  dairy  equipment  and  similar 
units. 

7.  Post  everything  that  has  been  entered  in  the  cash 
journal  up  to  this  point. 

8.  Charge  out  the  feed  consumed  by  livestock  during  the 
year  by  posting  the  values  shown  in  the  feed  record  to 
the  debit  of  the  several  livestock  accounts  and  to  the  credit 
of  the  crop  accounts. 

9.  Post  from  the  labor  and  horse  labor  records  to  the 


COST  ACCOUNTING 


^83 


f 


several  accounts  affected,  being  sure  that  the  debits  equal 
the  credits  in  each  of  the  summaries  before  posting.  When 
a  flat  or  estimated  hourly  rate  is  not  used  for  horse  labor, 
it  is  necessary  to  complete  the  posting  from  the  Labor 
Summary  before  calculating  the  value  of  the  horse  labor 

per  hour.  , 

10  Find  the  net  charge  to  Building  Expense  account  for 
the  year  Distribute  this  expense  over  the  various  farm 
elements  using  the  buildings  to  any  considerable  extent. 
This  distribution  is  made  rather  roughly  to  apply  to  the 
household,  each  class  of  livestock,  corn,  silage  and  equip- 
ment.   Post  the  entry. 

11  rind  the  net  charge  to  Equipment  Expense  account 
for  the  year,  by  referring  to  the  account  in  the  ledger  and 
considering  inventories  of  miscellaneous  supplies  as  per 
Inventory  Record.  Distribute  this  expense  over  the  vari- 
ous farm  elements  by  making  proper  apportionments  in  the 
Horse  Labor  Summary  as  described  under  "Equipment 
Expense"  and  in  Illustration  53.  After  making  these 
entries,  make  sure  that  the  debits  and  credits  expressed  are 
equal ;  then  post  them  to  the  accounts  indicated. 

12  Calculate  the  inventories  of  fertilizer,  labor  and 
other  charges  to  field  accounts,  which  are  to  be  carried 
over  to  next  year's  operations.  Enter  these  in  the  field 
accounts  in  the  regular  way.  The  resulting  balance  in  each 
field  account  is  the  cost  of  producing  this  year  s  crop  on 
that  field  In  order  to  transfer  these  costs  of  producing 
crops  to  the  crop  accounts,  an  entry  is  made  in  the  money 
columns,  debiting  the  several  crop  accounts  and  crediting 
the  respective  field  accounts.  The  entries  have  previ- 
ously been  made  in  the  explanation  columns  at  time  ot 
harvest.     (See  also  "Operation  of  Field  Accounts     and 

Illustration  52.) 

13    Examine  all  expense  accounts.    If  a  balance  remains 
in  any  of  them  after  making  proper  entries  for  miscel- 


laneous supplies  inventories  or  deferred  charges,  transfer 
such  balance  to  General  Expense  account.  This  applies 
especially  to  Labor,  Exchange  Labor,  Equipment  Expense, 
and  Silage.  The  transfer  is  made  by  entry  in  the  cash 
journal. 

14.  Post  all  entries  made  under  instructions  12  and  13 
above,  bringing  down  any  inventories  recorded  under  the 
Field,  Silage,  Equipment  Expense  or  other  accounts. 

15.  Close  General  Expense  account  after  considering 
miscellaneous  inventories  or  deferred  charges,  distributing 
its  balance  over  the  several  productive  elements  (crops  and 
livestock).  This  being  a  small  item,  usually,  it  is  more 
practical  to  apportion  it  over  the  several  crop  and  livestock 
accounts  arbitrarily  than  to  attempt  a  careful,  more  scien- 
tific distribution.  As  an  illustration,  if  wheat,  hay  and 
cattle  are  the  major  elements  on  a  given  farm,  they  should 
bear  a  large  share  of  the  general  expense,  leaving  only  a 
small  share  to  be  borne  by  the  less  important  crops  and 
livestock.  Having  decided  on  the  amount  to  be  charged 
to  each  productive  element,  make  an  entry  in  the  cash 
journal,  debiting  the  several  crop  and  livestock  accounts 
and  crediting  General  Expense  with  enough  to  balance  it. 

16.  Post  the  entries  made  under  instruction  15,  ruling 
off  each  account  in  the  ledger  whose  total  debits  equal  its 
total  credits. 

17.  At  this  point,  all  the  accounts  remaining  open  or 
that  have  inventories  brought  down  after  closing  should 
represent  cither  resources,  liabilities  (including  Capital  ac- 
count), or  the  transactions  with  productive  elements, 
Household,  Horses,  or  extraordinary  gains  or  losses.  In  or- 
der to  find  the  aggregate  net  gain  or  loss  for  the  year,  find 
the  net  gain  or  loss  on  each  productive  element,  and  trans- 
fer it  to  the  Loss  and  Gain  account.  The  inventory  in 
each  productive  element  is  credited  to  its  appropriate  ac- 
count before  closing  and  is  brought  down  on  the  debit  side 


284 


FARM  ACCOUNTING 


of  the  same  account  after  the  latter  is  ruled  off.  The  same 
is  true  of  the  Household  and  Horses  accounts.  (Any  ex- 
traordinary expenses  or  incomes  which  are  to  he  carried 
direct  to  Loss  and  Gain  account  are  closed  into  it  at  this 
time.    Fire  Loss  and  commission  as  agent  are  illustrations.) 

18.  The  net  balance  of  Loss  and  Gain  account  should  be 
transferred  to  the  Proprietor's  Capital  account  or  to  the 
Partners'  Capital  accounts  as  the  conditions  require.* 

19.  Rule  off  the  Capital  account  and  bring  down  the  net 

balance. 

20.  Take  a  Trial  Balance  after  Closing,  to  test  the 
accuracy  of  the  closing  process.  Incidentally,  it  shows  the 
resources  and  liabilities  of  the  business  at  the  close  of  the 
year,  including  the  proprietorship.   . 

Modifications  of  Cost  System.— The  operation  of  a  cost 
system  as  outlined  in  this  and  the  preceding  chapter  is 
simpler  in  some  details  than  would  be  advocated  for  the 
most  accurate  results  on  a  large  farm  or  for  some  experi- 
mental purposes.  However,  there  are  occasions  when  a 
farmer  might  feel  the  need  of  a  fair  distribution  of  costs 
over  the  productive  elements  without  keeping  even  such 
detailed  records  as  have  been  described  herein. 

It  may  be  said  that  a  farmer  feeling  unable  to  keep  his 
accounts  in  a  way  exactly  as  presented  in  the  two  chap- 
ters on  Cost  Accounting  should  at  least  try  to  keep  ac- 
counts that  will  show  in  a  general  way  the  relative  results 
of  the  several  productive  elements  of  the  farm.  In  doing 
this  the  farmer  should  use  the  same  general  principles  but 
use  more  estimates  than  are  used  in  the  system  studied  up 
to  this  point.  In  other  words,  he  should  keep  accounts  with 
the  household  and  each  productive  element,  and  such  other 
accounts  as  are  needed.  He  should  charge  each  productive 
element  with  some  amount  to  represent  labor,  horse  labor, 

»See  ''Loss  and  Gain  account,''  pages  44-48,  and  ''Closing  Entries 
of  Partnership,"  pages  185-186. 


COST  ACCOUNTING 


285 


feed  (in  case  of  livestock),  depreciation  of  equipment  and 
buildings,  rent  or  interest  on  investment.  He  ought  to 
keep  a  comparative  inventory  record  also.  He  could  get 
along  without  a  feed  record,  a  labor  record,  or  a  horse  labor 
record. 

If  one  operated  under  such  a  curtailed  cost  system  it 
would  mean  that  he  would  make  practically  the  same  en- 
tries in  the  cash  journal  and  in  the  ledger,  and  that  the 
closing  entries  would  be  the  same  in  principle  as  under  the 
more  detailed  system.  The  saving  of  time  would  come  in 
the  omission  of  some  of  the  subsidiary  records.  For  in- 
stance, feed  and  fertilizer,  labor  and  horse  labor  would 
be  distributed  to  the  several  livestock  and  field  accounts 
at  a  reasonable  estimated  value.  All  labor  could  be  charged 
to  Labor  account  as  usual,  and  at  the  close  of  the  year  the 
total  labor  could  be  distributed  over  the  farm  elements 
more  or  less  arbitrarily,  based  on  experience  or  observa- 
tion. Such  distribution,  however,  would  require  an  entry 
crediting  Labor  account  and  debiting  the  several  farm  ele- 
ments. The  same  method  could  be  followed  in  connection 
with  horse  labor. 

Feed  consumed  by  livestock  could  be  estimated  or  an 
occasional  test  could  be  made  to  form  the  basis  for  an 
entry  at  the  close  of  the  year  debiting  the  several  livestock 
accounts  and  crediting  the  several  crop  accounts.  The 
total  depreciation  on  equipment  could  be  distributed  over 
the  various  farm  elements  on  the  same  basis  used  for  horse 
labor.  Other  charges  could  be  made  by  estimate,  following 
the  same  general  plan. 

Obviously,  any  results  obtained  under  such  an  abbrevi- 
ated cost  system  could  not  be  considered  as  showing  the 
results  to  the  best  advantage.  Estimates  made  on  such  a 
large  scale  are  subject  to  errors.  If  one  intends  to  use 
such  a  system  involving  estimates  so  largely,  it  would  be 
much  better  if  he  would  keep  all  of  the  detailed  records  for 


'1 


286 


FARM  ACCOUNTING 


a  few  years  first.  After  keeping  such  records  he  would  then 
have  data  available  that  would  be  of  material  benefit  in 
making  estimates  for  the  same  farm  in  one  or  two  suc- 
ceeding years. 

Another  modification  in  the  operation  of  a  cost  system 
consists  in  the  elimination  of  field  accounts.  Such  a  method 
causes  the  crop  accounts  to  be  charged  direct  with  all  costs 
incurred  in  their  production,  harvesting  and  sale.  This 
method  is  open  to  the  criticisms  mentioned  under  Field 
Accounts,  General. 

After  the  Books  Are  Closed. — After  the  details  of  clos- 
ing have  been  followed  out  as  outlined  above,  the  ledger 
accounts  are  in  a  position  to  start  the  next  year's  busi- 
ness. They  are  also  in  condition  for  further  analysis  or 
interpretation.  The  most  common  forms  of  analysis  and 
interpretation  have  been  presented  in  connection  with  the 
study  of  the  Loss  and  Gain  Statement,  Statement  of  Re- 
sources and  Liabilities,  Farm  and  Individual  Loss  and 
Gain  Statement,  and  Change  of  Wealth  Statement.  Other 
methods  of  analyzing  and  interpreting  accounts  are  pre- 
sented in  the  next  chapter,  *' Interpretation  of  Cost  Ac- 
counts. *' 


ILLUSTRATIVE  PROBLEMS  CHAPTERS  VIII  AND  IX 

(Problem  1  may  be  assigned  after  a  study  of  Chapter  VIII, 
but  Chapter  IX  should  be  studied  before  the  problem  is  com- 
pleted.) 

Note.— Frohlem  1  is  intended  to  illustrate  the  operation  of  a 
partial  cost  system  resulting  in  the  determination  of  depart- 
mental costs  without  finding  some  of  the  results  essential  to  good 
farm  management.  That  is,  it  provides  for  proper  distribution 
of  feed,  labor,  horse  labor,  depreciation,  interest,  etc.,  over  the 
productive  elements,  but  does  not  show  costs  of  production  in 
the  several  fields.     This  method  is  followed  here  primarily  to 


COST  ACCOUNTING 


287 


afford  a  better  comparison  with  Fay's  results  under  the  General 
Accounting  System  as  in  problems  3  and  4  of  Chapter  VIL 

1.  Mr.  L.  E.  Fay,  who  has  been  farming  for  several  years  as 
a  tenant,  decides  to  keep  accounts  of  his  transactions  under  a 
cost  system.  Accordingly,  he  arranges  to  use  a  cash  journal 
and  ledger  and  monthly  labor,  horse  labor  and  feed  records,  be- 
ginning with  his  new  lease,  on  Jan.  1,  1916,  using  the  following 
columns  in  the  cash  journal  in  the  order  named :  Debit  -.—Labor, 
Roy  Wade,  Household,  Cash,  Sundry.  Credit :— Sundry,  Cash, 
Household,  Roy  Wade,  Poultry  and  Cattle. 

He  valued  his  possessions  and  prepared  a  Statement  of  Re- 
sources and  Liabilities,  as  follows: 

Statement  op  Resources  and  Liabilities 
Jan.  1,  1916.    L.  E.  Fay 


Resources 

Cash S800 

Household  furnishings. .,.  500 

B.  E.  Adams 60 

Notes  Rec.  (Atwood) .  . .  200 

Horses 800 

Cattle 600 

Hogs 350 

Sheep 150 

Poultry 30 

Bran,  shorts,  etc.   (Dr. 

Mill  Feed) 40 

Com 500 

Oats 100 

Wheat 250 

Hay 200 

Equipment 1,000 

$5,580 


Liabilities 
WattHdw.  Co.... 
Mortgage  Payable . 
L.  E.  Fay,  Cap.... 


$150 
2,000 
3,430 


$5,580 


In  order  to  reduce  the  details  of  the  problem,  the  inventory 
record  of  Mr.  Fay  is  not  to  be  used. 


II 


Ml 


288 


FARM  ACCOUNTING 


Make  the  necessary  entries  in  the  books  of  original  entry  to 
open  the  books  of  Mr.  Fay;  and  then  proceed  to  record  his  trans- 
actions for  the  year,  as  detailed  below. 

Transactions 

Jan.  2.  Gave  two  promissory  notes  to  landlord  for  $250  each, 
in  payment  of  year's  rent,^  one  due  Sept.  1  and  one  Dec.  15, 
1916,  without  interest. 

Jan.  3.  Spent  $10  for  household  supplies. 

Jan.  16.  Sold  com  for  $140  cash. 

Jan.  31.  The  household  received  during  the  month,  $5  worth 
of  dairy  products  and  $1  worth  of  eggs.  (Credit  Cattle  and 
Poultry  accounts  respectively.) 

Jan.  31.  Butchered  for  household  use,  four  hogs  valued  at 

$50. 

Feb.  1.  Paid  interest  on  mortgage  for  six  months,  $60.    (Debit 

Interest  on  Investment.) 

Feb.  11.  Bought  for  cash  two  horses  at  $150;  and  two  sets 
of  harness  at  $19.50.     (Harness  is  considered  as  equipment.) 

Feb.  16.  Received  a  60  day  note,  bearing  interest  at  6%, 
from  B.  E.  Adams  to  settle  his  account. 

Feb.  28.  The  household  received  during  the  month,  poultry 
valued  at  90c,  eggs  valued  at  $1.15  and  dairy  products  valued  at 

$6. 

Mar.  4.  Sold  wheat  for  $175  cash. 

Mar.  4.  Paid  cash  for  groceries,  $6. 

Mar.  4.  Paid  personal  taxes,  $35.67. 

Mar.  31.  The  household  received  during  the  month,  poultry 
valued  at  95c,  eggs  valued  at  $1.10  and  dairy  products  valued 

at  $6.40. 
Apr.  3.  Paid  for  repairs  to  wagon  and  com  planter,  $2.25. 

*The  total  rent  of  $500,  in  this  case,  is  not  distributed  over  the  farm 
elements  until  the  close  of  the  year.  This  is  made  necessary  by  the 
fact  that  accounts  with  fields  are  not  kept  in  Mr.  Fay 's  cost  system. 
Accordingly,  a  distribution  at  the  beginning  of  the  year  is  not 
feasible,  as  it  is  not  known  in  advance  in  all  cases  just  what  crops  are 
to  be  planted  on  certain  fields.    Debit  Rent  account  with  $500. 


COST  ACCOUNTING 


289 


Apr.  16.  Received  cash  from  B.  E.  Adams  to  redeem  his 
note  of  Feb.  16th  ^  and  to  pay  interest  on  same. 

Apr.  30.  The  household  received  during  the  month,  poultry 
valued  at  80c,  eggs  valued  at  90c  and  dairy  products  valued 

at  $5.30. 

May  1.  Arranged  with  Roy  Wade  to  work  by  the  month  until 
December  1st  for  $30  a  month  and  his  board,  room  and  laundry. 
It  is  agreed  that  he  can  draw  his  wages  in  installments  of  not 
less  than  $5  at  any  one  time  after  he  has  earned  them. 

May  5.  Received  cash  from  A.  M.  Atwood  for  note  due  today, 
with  interest  on  same  at  6%   per  annum  from  December  5, 

1915. 

May  6.  Paid  Watt  Hdw.  Co.  in  full  of  account,  $150. 

May  25.  Decided  to  discontinue  the  raising  of  sheep,  so  sold 
all  the  sheep  for  $230  cash. 

May  25.  Roy  Wade  drew  $10  on  account  of  wages. 

May  31.  Sold  part  of  the  hay  for  $95. 

May  31.  The  household  received  during  the  month,  poultry 
valued  at  70c,  eggs  valued  at  $1.30  and  dairy  products  valued 

at  $7. 

May  31.  Credited  Roy  Wade  with  wages  for  May,  $30. 

May  31.  The  household  values  the  board,  room  and  laundry 
of  the  hired  man  during  May  at  $20. 

June  1.  Paid  $30  for  bran  and  shorts. 

June  8.  Roy  Wade  drew  $20  on  account. 

June  10.  Bought  sundry  supplies  for  house,  $16.50,  of  which 
$13  was  paid  in  cash,  $2.50  in  butter,  and  $1  in  eggs.  (Cr.  House- 
hold for  the  $2.50  and  $1.) 

June  10.  Bought  nails,  bolts,  etc.,  for  repair  of  equipment, 

$1.15  cash. 

June  10.  Bought  a  new  hat  and  suit  of  clothes  for  $27.50 

cash. 

June  30.  The  household  received  during  the  month,  eggs 
valued  at  50c  and  dairy  products  valued  at  $5.60. 

June  30.  Credited  Roy  Wade  with  wages  for  June,  $30. 

*In  figuring  60  days  from  February  16,  it  should  be  remembered 
that  1916  was  a  leap  year. 


290 


FARM  ACCOUNTING 


COST  ACCOUNTING 


291 


I 


June  30.  The  household  values  the  board,  room  and  laundry 
of  the  hired  man  during  June  at  $20. 

July  3.  Paid  for  binder  twine  for  oats  crop,  $19.50. 

July  3.  Roy  Wade  drew  $30  on  account. 

July  4.  Spent  $7.40  for  sundry  expenses  in  town  at  holiday 

celebration. 

July  8.  Deposited  $500  in  savingrs  account  at  State  Trust  & 
Savings   Bank.      (Debit   State   Trust   &   Savings   Bank;   credit 

Cash.) 

July  15.  Paid  for  extra  help  during  the  haying  season,  $9.30. 

(Dr.  Labor.) 

July  22.  Bought  groceries  for  cash,  $16. 

July  31.  The  household  received  during  the  month,  eggs  valued 
at  35c,  and  dairy  products  valued  at  $3.40. 

July  31.  Credited  Roy  Wade  with  wages  for  July,  $30. 

July  31.  The  household  values  the  board,  room  and  laundry  of 
the  hired  man  during  July  at  $20. 

Aug.   1.  Paid  interest  on  mortgage,  $60.      (Dr.   Interest   on 

Investment.) 

Aug.  6.  Paid  for  sundry  small  tools,  $6.30. 
Aug.  16.  Paid  for  threshing  coal  for  oats  crop,  $4.27. 
Aug.  18.  Sold  520  bushels  new  oats  at  $0.53  cash. 
Aug.  23.  Sold  some  corn  for  $150  cash. 
Aug.  23.  Bought  groceries  for  cash,  $19.50. 
Aug.  31.  The  household  received  during  the  month,  eggs  valued 
at  60c,  and  dairy  products  valued  at  $3. 

Aug.  31.  Sold  eggs  for  90c  cash  during  August. 
Aug.  31.  Credited  Roy  Wade  with  wages  for  August,  $30. 
Aug.  31.  The  household  values  the  board,  room  and  laundry  of 
the  hired  man  during  August,  at  $20. 

Sept.  1.  Paid  $250  to  redeem  note  held  by  landlord  due  to- 
day. 

Sept.  6.  Bought  bran,  shorts,  etc.,  for  $29  cash. 
Sept.  6.  Sold  four  calves  for  $85  cash. 
Sept.  8.  Paid  Roy  Wade  on  account  $15. 
Sept.  15.  Paid  for  extra  help  during  threshing  season,  $4.50. 
(Debit  Labor.) 


t 


Sept.  21.  Paid  fire  insurance  premiums,  $8.  (Dr.  General 
Expense.) 

Sept.  30.  The  household  received  during  the  month,  eggs  valued 
at  $1  and  dairy  products  valued  at  $5.10. 

Sept.  30.  Credited  Roy  Wade  with  wages  for  Sept.,  $30. 

Sept.  30.  The  household  values  the  board,  room  and  laundry 
of  the  hired  man  during  Sept.  at  $20. 

Sept.  30.  Paid  Roy  Wade  on  account,  $15. 

Oct.  6.  Paid  for  winter  clothes  for  self  and  family,  $86.50. 

Oct.  10.  Bought  for  cash  two  husking  hooks,  40c;  two  corn 
knives,  60c;  and  one  wheelbarrow,  $3.     (Dr.   Equipment.) 

Oct.  21.  Sold  for  cash,  30  shotes,  4500  lbs.,  at  $13  per  cwt. 

Oct.  31.  Credited  Roy  Wade  with  wages  for  October,  $30. 

Oct.  31.  The  household  values  the  board,  room  and  laundry  of 
the  hired  man  during  October  at  $20. 

Oct.  31.  The  household  received  during  the  month,  poultry 
valued  at  $1.25,  eggs  valued  at  $1.20,  and  dairy  products  valued 
at  $6.30. 

Nov.  6.  One  cow  valued  at  $20  died  and  was  buried  on  the 

farm. 

Nov.  20.  Sold  some  poultry  for  $16.45  cash. 

Nov.  30.  Donated  to  the  United  Charities,  $10.  (General 
Expense.) 

Nov.  30.  The  household  received  during  the  month,  poultry 
valued  at  $2,  eggs  valued  at  $1.10,  and  dairy  products  valued 
at  $5.90. 

Nov.  30.  Credited  Roy  Wade  with  wages  for  Nov.,  $30,  and 
paid  him  $30  on  account. 

Nov.  30.  The  household  values  the  board,  room  and  laundry 
of  the  hired  man  during  the  month  at  $20. 

Dec.  3.  Paid  cash  for  bran,  shorts,  etc.,  $26. 

Dec.  3.  Paid  for  buggy  wheel,  $5.95;  one  pair  trace  springs, 
$1 ;  one  wagon  tongue  support,  $1.70 ;  one  single  tree,  60c ;  nails, 
screws  and  bolts,  70c;  and  two  horse  blankets,  $5.90.  (All  are 
to  be  charged  to  Equipment  Expense.) 

Dec.  15.  Paid  $250  to  redeem  note  held  by  landlord,  due  to- 
day. 

Dec.  18.  Sold  some  poultry  for  $6.20  cash. 


1 1 


292 


FARM  ACCOUNTING 


Dec.  18.  Paid  for  incidental  Christmas  purchases,  $10.65. 
Dec.  19.  Paid  Roy  Wade  on  account,  $50. 
Dec.   31.  The  household   received   during  the  month,   poultry 
valued  at  $1.40,  eggs  valued  at  45c  and  dairy  products  valued  at 

$4.80. 

Dec.  31.  Mr.  Fay  places  the  value  of  his  services  as  a  laborer 

at  $600  for  the  year. 

The  feed  records  kept  during  the  year  showed  commodities 
consumed,  which  have  been  calculated  as  bearing  the  values  stated 
below.  They  are  to  be  summarized  in  the  Feed  Record  for  the 
year  as  in  Illustrations  49  and  50  and  used  as  bases  for  journal 
entries  under  date  of  Dec.  31,  1916.  (See  closing  instruction  7 
at  the  close  of  the  problem.) 

January 

Horses:  com,  $6.20;  hay,  $8.30.  Cattle:  com,  $10.30;  hay, 
$21.60.  Hogs :  com,  $30.  Sheep :  hay,  $8.  Poultry :  com,  $1.90 ; 
wheat,  $1.95. 

February 

Horses:  com,  $8.55;  hay,  $12.75.  Cattle:  com,  $9.10;  hay, 
$16.20;  bran  and  shorts,  $8.  Hogs:  com,  $25;  wheat,  $6;  bran 
and  shorts,  $6.  Sheep:  hay,  $7.  Poultry:  com,  $1.30;  wheat, 
$1.75. 

March 

Horses:  com,  $14;  hay,  $16;  oats,  $5;  pasture,  $2.  Cattle: 
com,  $7.35;  hay,  $11.80;  bran  and  shorts,  $7;  pasture,  $3. 
Hogs :  com,  $26 ;  wheat,  $4 ;  bran  and  shorts,  $7.  Sheep :  pasture, 
$10.    Poultry:  com,  $0.90;  wheat,  $1. 

April 

Horses:  com,  $18.75;  hay,  $21;  oats,  $16;  pasture,  $2.  Cat- 
tle: com,  $6.20;  hay,  $10;  bran  and  shorts,  $6.60;  pasture,  $4. 
Hogs:  com,  $23;  bran  and  shorts,  $4.  Sheep:  pasture,  $10. 
Poultry:  corn,  $0.60;  wheat,  $0.90. 


COST  ACCOUNTING 


May 


29S 


Horses:  com,  $20.60;  hay,  $18;  oats,  $14;  pasture,  $1.30. 
Cattle:  corn,  $4;  pasture,  $3.  Hogs:  com,  $20;  wheat,  $5. 
Sheep:  pasture,  $8.    Poultry:  bran  and  shorts,  $1.20, 


June 

Horses:  corn,  $18;  hay,  $16.70;  oats,  $16.30;  pasture,  $1.30. 
Cattle:  bran  and  shorts,  $6;  pasture,  $5.60.  Hogs:  corn,  $18.60; 
wheat,  $5.40.     Poultry:  wheat,  $1. 

July 

Horses:  com,  $23;  hay,  $17;  oats,  $16;  pasture,  $1.10.  Cat- 
tle: bran  and  shorts,  $5;  pasture,  $5.  Hogs:  corn,  $19;  wheat, 
$7.20;  Poultry:  wheat,  $1.05. 

August 

Horses:  com,  $14;  hay,  $13;  oats,  $12.60;  pasture,  $1.20. 
Cattle :  bran  and  shorts,  $6 ;  pasture,  $4.20.  Hogs :  com,  $20.10 ; 
wheat,  $7.    Poultry:  wheat,  $0.95. 


September 

Horses:  com,  $7;  hay,  $10;  oats,  $10;  pasture,  $2.  Cattle: 
bran  and  shorts,  $4.50;  pasture,  $6.  Hogs:  corn,  $25.30;  wheat, 
$8.    Poultry:  wheat,  $1.20. 


October 

Horses:  corn,  $9;  hay,  $14;  oats,  $21;  pasture,  $1.30.  Cattle: 
bran  and  shorts,  $7;  pasture,  $4.  Hogs:  com,  $25;  wheat,  $6. 
Poultry:  com,  $1;  wheat,  $1.10;  bran  and  shorts,  $2. 

November 

Horses:  com,  $11.20;  hay,  $11;  oats,  $17;  pasture,  $1.80. 
Cattle:   bran   and  shorts,   $10;   fodder    (com),   $4.80;   pasture. 


S94 


FARM  ACCOUNTING 


I     r 


$2.50.    Hogs:  corn,  $16;  bran  and  shorts,  $10;  wheat,  $4.    Poul- 
try: corn,  $1,30;  wheat,  $1.30. 

December 

Horses:  com,  $7;  hay,  $9;  pasture,  $2.50.  Cattle:  bran  and 
shorts,  $8;  fodder,  $5.70;  hay,  $17;  pasture,  $3.  Hogs:  com, 
$21;  wheat,  $4.50;  bran  and  shorts,  $8.50.  Poultry:  com,  $1.05; 
wheat,  $2.10. 

The  monthly  labor  records  for  the  year  show  the  following 
hours  worked,  to  be  summarized  in  the  yearly  Labor  Record  as 
in  Illustration  47,  the  totals  of  which  are  to  be  calculated^  at 
20  cents  an  hour  and  a  journal  entry  made  therefrom.  (See 
closing  instruction  8  at  the  close  of  the  problem.) 

January 

Cattle,  45;  hogs,  30;  horses,  15;  expense  (General  Expense 
a/c),  25;  repairs  (Equipment  Expense  a/c),  16;  poultry,  21; 
sheep,  19;  household,  40;  corn,  18. 

February 

Cattle,  40;  hogs,  27;  horses,  26;  expense,  30;  repairs,  10; 
poultry,  16;  sheep,  12;  household,  21. 

March 

Cattle,  28;  hogs,  26;  horses,  21;  expense,  16;  repairs,  15; 
poultry,  7;  sheep,  10;  com,  8;  oats,  6;  household,  12;  wheat,  21. 

April 

Cattle,  30;  hogs,  27;  horses,  23;  expense,  28;  repairs,  6; 
poultry,  20;  sheep,  5;  com,  15;  oats,  48;  hay,  16;  household, 
15. 

*The  Labor  and  Horse  Labor  Conversion  Table,  Illustration  75, 
Appendix,  may  be  used  to  assist  in  the  calculation. 


COST  ACCOUNTING 


May 


295 


Cattle,  35;  hogs,  22;  horses,  20;  expense,  60;  repairs,  9;  poul- 
try, 15;  sheep,  30;  com,  105;  hay,  40;  household,  28. 


June 


Cattle,  37;  hogs,  20;  horses,  21;  expense,  47;  repairs,  15; 
poultry,  12;  com,  152;  hay,  68;  household,  16. 

July 

Cattle,  43;  hogs,  18;  horses,  18;  expense,  23;  repairs,  26; 
poultry,  10;  com,  175;  oats,  80  of  which  50  hours  were  worked 
by  neighbors;  ^  household,  12. 

August 

Cattle,  47;  hogs,  17;  horses,  19;  expense,  25;  repairs,  18; 
poultry,  7;  com,  27;  oats,  165  of  which  150  hours  were  worked 
by  neighbors;  1  exchange  labor,  120;  household,  6. 

September 

Cattle,  38;  hogs,  16;  horses,  22;  expense,  68;  repairs,  2;  poul- 
try, 6;  oats,  14;  exchange  labor,  110;  hay,  18;  household,  10; 
corn,  5. 

October 

Cattle,  46;  hogs,  31;  horses,  23;  expense,  20;  repairs,  5; 
poultry,  17;  com,  122;  household,  35. 

November 

Cattle,  40;  hogs,  12;  horses,  11;  expense,  16;  repairs,  6;  poul- 
try, 17;  com,  188;  household,  11. 

*The  50  and  150  hours  worked  by  neighbors  in  July  and  August 
correspond  to  the  33  and  82  hours  shown  in  parentheses  in  June  and 
July  respectively  of  Illustration  47.  They  are  to  be  treated  in  th.? 
same  way,  resulting  ultimately  in  a  credit  to  Exchange  Labor 
account. 


296 


FARM  ACCOUNTING 


December 


Cattle,  34;  hogs,  11;  horses,  10;  expense,  16;  repairs,  14; 
poultry,  18;  household,  12. 

The  monthly  horse  labor  records  for  the  year  show  the  follow- 
ing hours  worked,  to  be  summarized  in  the  yearly  Horse  Labor 
Record  similar  to  Illustration  47,-  tlie  totals  of  which  are  to  be 
calculated  at  10  cents  an  hour,  and  a  journal  entry  made  there- 
from.    (See  closing  instruction  9  at  the  close  of  the  problem.) 

January 

Cattle,  6;  hogs,  5;  expense  (General  Expense  a/c),  6;  house- 
hold, 12;  com,  36. 

February 

Expense,  7;  household,  5. 

March 
Expense,  3;  household,  10;  wheat,  42. 

April 

Cattle,  2;  hogs,  3;  expense,  8;  household,  6;  repairs  (Equip- 
ment Expense),  4;  com,  38;  oats,  126;  hay,  32. 

May 

Expense,  8;  sheep,  30;  com,  260;  hay,  80;  household,  16. 


June 

Expense,  15;  repairs,  8;  com,  304;  bay,  56;  household,  13. 

*  Space  is  to  be  reserved  also  at  the  bottom  of  the  Horse  Labor 
Record  for  showing  the  distribution  of  Equipment  Expense  as  in 
Illustration  53,  and  in  accordance  with  explanation  given  under  in- 
gtnictipii  U  at  the  close  of  this  problem. 


COST  ACCOUNTING 


July 


297 


Expense,  3;  corn,  350;  oats,  240,  of  which  100  hours  were 
worked  by  neighbors'  horses;  household,  22. 

August 

Cattle,  7;  hogs,  4;  expense,  3;  com,  54;  oats,  345,  of  which 
320  hours  were  worked  by  neighbors'  horses;  exchange  labor, 
200;  household,  12. 

September 

Expense,  24;  oats,  28;  exchange  labor,  180;  hay,  47;  house- 
hold, 11;  com,  15. 

October 
Hogs,  28;  expense,  25;  com,  244;  household,  18. 

November 
Cattle,  3;  expense,  12;  poultry,  8;  com,  316;  household,  14. 

December 
Expense,  22;   repairs,  7;   poultry,  8;  household,  14. 

Instructions  for  Closing 

(See  also  General  Plan  of  Closing  and  Detailed  Procedure 
in  Closing  near  the  end  of  Chapter  IX.) 

1.  Post  all  entries  from  the  cash  journal  to  the  ledger  be- 
fore framing  journal  entries  from  the  yearly  feed,  labor  and 
horse  labor  records,  but  after  entering  the  $600  for  Fay's  labor. 
Allow  enough  space  for  the  transactions  of  problem  2  below 
which  require  the  use  of  the  same  ledger  accounts. 

2.  Take  a  trial  balance  to  test  the  accuracy  of  the  work  before 
closing. 

3.  Make  a  joumal  entry  debiting  the  accounts  named  below 
and  crediting  Rent  to  distribute  the  $500  rent  over  the  several 
farm  elements,  on  a  basis  of  the  following  percentages:  House- 


298 


FARM  ACCOUNTING 


hold  3%,  cattle  4%,  hogs  5%,  horses  4%,  sheep  1%,  poultry 
2%,  com  34%,  oats,  20%,  wheat  1%,  hay  13%,  pasture 
10%,  equipment  (debit  Equipment  Kxpense)  1%,  miscellane- 
ous elements,  as  barn  yard,  etc.  (debit  General  Expense),  2%. 

4.  Calculate,  and  enter  interest  on  investment  for  the  year  as 

follows : 

(a)  Debit  Equipment  Expense  account  and  credit  Interest  on 
Investment  with  4%  of  the  value  of  equipment  on  hand  at  the 
beginning  of  the  year. 

(b)  Debit  each  of  the  several  livestock  accounts  and  credit 
Interest  on  Investment  with  4%  of  the  value  of  each  of  the 
several  classes  of  livestock  on  hand  at  the  beginning  of  the  year, 
except  as  modified  in  the  following  note: 

Note.— ^ince  all  sheep  were  sold  during  the  latter  part  of 
May,  they  should  be  charged  (and  Interest  on  Investment  cred- 
ited) with  only  five-twelfths  of  the  interest  on  $150  for  a  year. 

5.  Calculate  and  enter  depreciation  on  equipment  for  the  year, 
debiting  Equipment  Expense  and  crediting  Equipment  with  10% 
of  the  book  value  of  equipment  at  the  beginning  of  the  year. 

6.  Post  all  the  entries  made  under  instructions  3,  4  and  5 

above. 

7.  Charge  out  the  feed  consumed  by  livestock  during  the  year 
by  makmg  a  journal  entry  for  the  values  shown  in  the  feed 
record,  debiting  the  several  livestock  accounts  and  crediting  the 
crop  accounts.    Post  the  items  in  the  entry  just  made. 

8.  Use  the  labor  record  as  a  basis  for  a  journal  entry,  debiting 
the  several  accounts  indicated  therein  and  crediting  Labor  and 
Exchange  Labor,  each  with  the  proper  amount. 

9.  Use  the  horse  labor  record  as  a  basis  for  a  journal  entry, 
debiting  the  several  accounts  indicated  therein  and  crediting 
Horses  and  Exchange  Labor,  each  with  the  proper  amount. 

10.  Post  the  entries  made  under  instructions  8  and  9  above. 

11.  (a)  Distribute  the  balance  of  Equipment  Expense  account 
over  the  various  farm  elements  on  a  basis  of  horse  labor.  This 
distribution  is  to  be  made  as  described  under  "Equipment  Ex- 
pense" and  as  shown  in  Illustration  53.  In  making  these  cal- 
culations, the  hours  shown  in  parentheses  in  the  horse  labor 
record  are  to  be  used.    For  example,  if  Illustration  47  contained 


COST  ACCOUNTING 


299 


figures  for  the  horse  labor  record  in  question,  the  Equipment 
Expense  account  balance  would  be  divided  by  2681.  Assume  that 
this  division  gave  a  result  of  .053,  meaning  that  5  cents  to  the 
nearest  integral  cent  was  to  be  cl^arged  for  every  hour  the 
equipment  was  in  use.  The  amounts  to  charge  to  the  various 
accounts  would  be:  cattle,  798  times  .05;  Field  Iso.  1,  284  times 
.05;  Exchange  Labor  157  times  .05  and  so  on. 

(b)  Make  a  journal  entry  expressing  debits  to  the  various 
accounts  shown  in  the  horse  labor  record  and  crediting  Equip- 
ment Expense  and  Exchange  Labor  accounts  with  the  amounts 
obtained  in  (a)  above.  Post  the  entry.  (Since  there  is  no  inven- 
tory of  Miscellaneous  Supplies,  in  this  problem,  to  affect  Equip- 
ment Expense,  the  latter  account  would  now  be  in  balance  with 
no  inventory  to  carry  down,  if  it  were  not  for  the  fact  that  the 
fractional  part  of  a  cent  was  disregarded  in  the  hourly  rate.) 

12.  Make  entries  in  the  cash  journal,  closing  any  balances 
remaining  in  Labor,  Exchange  Labor  and  Equipment  Expense 
accounts  into  General  Expense  account.     Post  the  entry. 

13.  The  inventory  of  mill  feed  is  $15.  Record  this  in  the  ac- 
count. Any  balance  left  represents  shrinkage  or  error  in  re- 
cording feed,  and  is  to  be  transferred  to  General  Expense  ac- 
count by  entry  in  the  cash  journal.  Post  the  entry,  rule  off  the 
Mill  Feed  account  and  bring  down  the  inventory. 

14.  Close  Interest  account  into  General  Expense.  Distribute 
the  general  expenses  over  the  various  productive  elements  by 
journal  entry,  crediting  General  Expense  account  with  enough  to 
close  it  and  debiting  each  of  the  accounts  representing  produc- 
tive elements  with  its  fair  share.  For  the  purpose  of  securing 
uniformity  charge  the  productive  elements  with  the  following 
proportions  of  the  total:  Cattle  5%,  hogs  7%,  poultry  3%, 
sheep  2%,  oats  25%,  hay  17%,  corn  40%,  wheat  1%.  Post 
the  entry. 

15.  Make  entries  direct  in  the  accounts  for  the  following  in- 
ventories: household  furnishings  $500;  horses,  $1100;  cattle, 
$570;  hogs,  $240;  poultry,  $25;  com,  $830;  oats,  $350;  hay, 
$290. 

Transfer  any  balances  remaining  in  the  productive,  Household 


soo 


FARM  ACCOUNTING 


and  Horses  accounts  into  Loss  and  Gain  account,  carrying  the 
inventories  down  below  the  ruling. 

16.  Close  any  other  accounts  showing  a  gain  or  loss  into  the 
Loss  and  Gain  account.  Pasture  and  Interest  on  Investment  are 
examples. 

17.  Close  Loss  and  Gain  account  into  L.  E.  Fay's  Capital  ac- 
count, ruling  off  the  latter  and  bringing  down  the  balance. 

18.  Rule  off  and  bring  down  the  balance  of  Cash  account,  and 
of  any  other  property  or  liability  accounts  not  specifically  treated 
above. 

Instructions  after  Closing 

(a)  Take  a  trial  balance  after  closing  which  may  be  con. 
sidered  also  as  a  Statement  of  Resources  and  Liabilities  as  of 
December  31,  1916. 

(b)  Prepare  a  Farm  and  Individual  Income   Statement  for 

the  year. 

(c)  Prepare  a  Change  of  Wealth  Statement  as  of  Decem- 
ber 31,  1916. 

2.  You  are  to  record  in  the  cash  journal  (beginning  on  a  new 
page)  the  transactions  of  L.  E.  Fay  for  the  year  ended  Dec.  31, 
1917,  which  were  as  follows: 

Jan.  3.  Gave  two  promissory  notes  to  landlord  for  $250  each 
in  payment  of  year's  rent,  one  due  Sept.  1  and  one  Dec.  15,  1917, 
without  interest.     (Debit  Rent  account.) 

Jan.  3.  Paid  Roy  Wade  cash  to  balance  account. 

Jan.  4.  Sold  some  com  for  $400  cash. 

Jan.  15.  Paid  $20  for  clothing. 

Jan.  30.  Butchered  a  beef  for  family  use,  $70. 

Jan.  31.  Took  savings  bank  pass  book  to  bank  and  had  in- 
terest credited  for  the  six  months  to  Jan.  1st.  $7.50.  (Debit 
State  Trust  &  Savings  Bank  and  credit  Interest.) 

Feb.  1.  Paid  interest  on  mortgage  for  six  months,  $60. 

Feb.  3.  Sold  beef  quarter  and  other  parts  of  the  animal  butch- 
ered a  few  days  ago  for  $30. 

Mar.  1.  Sold  hogs  for  $100  cash. 

Mar.  1.  Paid  personal  taxes,  $39. 


COST  ACCOUNTING 


301 


Mar.  20.  Paid  for  sundry  household  supplies,  $28. 

Mar.  31.  The  household  record  shows  the  following  commodi- 
ties turned  over  to  the  house  during  January,  February  and 
March:  poultry,  $4;  eggs,  $9.20;  milk,  $22. 

Mar.  31.  During  the  three  months,  the  household  has  sold  for 
cash  part  of  the  products  as  follows:  eggs,  $4;  butter,  $5. 

Apr.  1.  Made  a  contract  with  Roy  Wade  similar  to  the  one  of 
last  year,  except  that  he  begins  April  1  instead  of  May  1,  and 
is  to  receive  $35  a  month  and  his  board,  room  and  laundry,  and 
the  use  of  a  horse  and  buggy.* 

Apr.  1.  Sold  some  hay  for  $150  cash. 

Apr.  3.  Bought  mill  feed  for  $30. 

Apr.  18.  Paid  for  harness  repairs,  $4.  (Harness  is  part  of 
the  equipment.) 

Apr.  28.  Paid  horseshoeing  bill  of  $2. 

Apr.  30.  Credited  Roy  Wade  with  wages  for  April  $35. 

Apr.  30.  The  household  values  the  board  of  hired  man  at  $20 
for  the  month  of  April. 

Note. — On  the  last  day  of  each  month  from  May  to  November, 
both  inclusive,  you  are  to  make  entries  for  the  $35  wages 
credited  to  Roy  Wade  and  for  the  $20  board  without  being  told 
to  do  so  each  time. 

May  8.  Paid  Roy  Wade  $5  on  account. 

May  10.  Paid  for  sundry  repairs  to  equipment,  $8. 

June  20.  Paid  cash  for  extra  labor  $6. 

June  25.  Paid  Roy  Wade  $7  on  account. 

June  30.  The  household  record  shows  the  following  commodi- 
ties turned  over  to  the  house  during  April,  May  and  June: 
poultry,  $6;  eggs,  $18;  milk,  $35. 

June  30.  During  the  three  months,  the  household  has  sold  for 
cash,  part  of  the  products  as  follows:  eggs,  $10;  butter,  $15. 

July  1.  Paid  Roy  Wade  on  account  $10. 

*  Theoretically,  the  value  placed  on  the  use  of  the  horse  and  buggy 
would  be  debited  to  Labor  and  credited  to  Miscellaneous  Income  or  to 
General  Expense  because  this  concession  is  equivalent  to  a  recognition 
that  labor  is  worth  more  than  $35  plus  $20  board.  Mr.  Fay,  however, 
does  not  wish  to  consider  the  value  of  labor  as  increased  by  this 
concession. 


p  » 


ii 


502 


FARM  ACCOUNTING 


July  4.  Sundry  expenses  over  the  holiday  amounted  to  $3.10. 

July  5.  Paid  cash  for  binder  twine  for  20  acres  of  wheat  and 
30  acres  of  oats  $25.  (Divide  the  charge  between  the  two  ac- 
counts on  a  basis  of  acreage.) 

July  18.  Paid  for  extra  labor,  $7.50. 

July  20.  Paid  Roy  Wade  on  account  $8. 

July  21.  Bought  sundry  household  supplies  for  cash  $11. 

July  21.  Had  interest  for  6  months  entered  in  savings  bank 
pass  book,  $7.50. 

Aug.  1.  Sold  hay  for  $160  cash. 

Aug.  1.  Withdrew  all  of  savings  account  balance,  and  paid 
interest  on  mortgage  $60,  and  $500  in  reduction  of  the  principal 
of  the  mortgage  note. 

Aug.  1.  Paid  Roy  Wade  on  account  $9. 

Aug.  8.  Paid  for  new  small  pieces  of  equipment,  $12. 

Aug.  10.  Sold  some  wheat  to  D.  C.  Robbins  for  $500,  receiv- 
ing a  60-day  note  bearing  6%  interest. 

Aug.  20.  Sold  some  oats  for  $450  cash. 

Aug.  30.  Bought  supplies  for  household,  $15. 

Aug.  31.  Paid  Roy  Wade  $8  on  account. 

Sept.  1.  Paid  cash  for  extra  labor  $10. 

Sept.  1.  Paid  $250  to  redeem  note  held  by  landlord,  due  to- 
day. 

Sept.  8.  Sold  two  calves  for  $50  cash. 

Sept.  18.  Paid  Roy  Wade  $12  on  account. 

Sept.  21.  Paid  fire  insurance  premiums,  $12. 

Sept.  30.  The  household  record  shows  the  following  commodi- 
ties turned  over  to  the  house  during  July,  August  and  Septem- 
ber: poultry,  $4;  eggs,  $16.30;  milk,  $27. 

Sept.  30.  During  the  three  months,  the  household  has  sold  for 
cash,  part  of  the  products  as  follows:  eggs,  $9;  butter,  $12. 

Oct.  19.  Received  a  check  from  D.  C.  Robbins  to  redeem  his 
note  of  August  10,  with  interest,  $505. 

Oct.  19.  Paid  $100  for  Liberty  Bonds  (Dr.  Liberty  Bond  ac- 
count). 

Oct.  26.  Paid  Roy  Wade  $20  on  account. 

Oct.  31.  Sold  some  shotes  for  $300  cash. 

Nov,  ^,  bought  sundry  household  supplies,  $15. 


COST  ACCOUNTING 


30^ 


Nov.  15.  Sold  poultry  for  $18  cash.  ' 

Nov.  16.  Donated  $25  to  Red  Cross  work.  (General  Ex- 
pense). 

Dec.  1.  Sold  400  bu.  com  at  $1.20  for  cash. 

Dec.  2.  Bought  a  half  interest^  in  a  self-feed  corn  sheller 
for  $42.50  cash. 

Dec.  15.  Paid  $250  to  redeem  note  held  by  landlord  due  to- 
day. 

Dec.  20.  Paid  Roy  Wade  cash  to  balance  his  account. 

Dec.  20.  Paid  $30  cash  for  household  supplies. 

Dec.  31.  The  household  record  shows  the  following  commodities 
turned  over  to  the  house  during  October,  November  and  Decem- 
ber: poultry,  $10;  eggs,  $12;  milk,  $30. 

Dec.  31.  During  the  three  months,  the  household  has  sold  for 
cash  part  of  the  products  as  follows:  eggs,  $3;  butter,  $13. 

Dec.  31.  Mr.  Fay  places  the  value  of  his  services  as  a  laborer 
at  $600  for  the  year. 

The  feed  records  kept  during  the  year,  when  summarized  into 
the  Feed  Record  for  the  year  ended  Dec.  31,  1917,  give  the  fol- 
lowing Total  Values :  ^  Charges  to  Animals :  Horses,  $574.90 ; 
Cattle,  $250.10;  Hogs,  $400.30;  Poultry,  $30.  Credits  to  Crops 
and  Feed:  Corn,  $600.50;  Hay,  $310;  Oats,  $157.80;  Wheat, 
$87;  Pasture,  $58;  Mill  Feed,  $42.  (See  closing  instruction  7 
at  the  end  of  the  problem.) 

The  monthly  labor  records  have  been  summarized  into  the 
Yearly  Labor  Record  for  the  year  ended  Dec.  31,  1917,  giving 
the  total  hours  chargeable  against  the  various  accounts  as  fol- 
lows: Cattle,  480;  hogs,  245;  horses,  212;  general  expense,  290; 
equipment  expense,  164;  poultry,  130;  household,  190;  com, 
1050,  of  which  1010  hours  were  worked  by  regular  help   and 

*  This  requires  a  debit  to  Equipment  account  for  only  $42.50.  If 
the  comparative  inventory  record  were  in  use,  the  machine  would  be 
entered  as  a  matter  of  record,  with  proper  notation  to  indicate  the 
other  half -owner. 

*The  total  values  for  the  year  are  given,  instead  of  requiring  the 
student  to  compile  the  summarized  table.  These  totals,  however,  have 
been  determined  in  the  same  way  as  the  totals  obtained  by  the  student 
in  problem  1  above. 


504 


FARM  ACCOUNTING 


I 


40  hours  by  the  neighbors;  oats,  280,  of  which  100  hours  were 
worked  by  regular  help  and  180  hours  by  the  neighbors;  wheat 
217,  of  which  82  hours  were  worked  by  regular  help  and  135 
hours  by  the  neighbors;  hay  165;  exchange  labor  310.  (The 
hours  given  above  are  to  be  figured  at  $0.20  an  hour  as  in 
closing  instruction  8  referred  to  at  the  close  of  this  problem.) 

The  monthly  horse  labor  records  have  been  summarized  into 
the  Yearly  Horse  Labor  Record  for  the  year  ended  Dec.  3l, 
1917,  giving  the  total  hours  chargeable  against  various  accounts 
as  follows:  Cattle,  20;  hogs,  33;  general  expense,  78;  equipment 
expense,  19;  poultry,  13;  household,  132;  corn,  2080;  oats,  604, 
of  which  396  hours  were  worked  by  regular  help  and  208  hours 
by  the  neighbors;  wheat,  435,  of  which  295  hours  were  worked 
by  regular  help  and  140  hours  by  the  neighbors;  hay,  248; 
exchange  labor,  330.  (The  hours  given  above  are  to  be  figured  at 
$0.10  an  hour  as  in  closing  instruction  9  referred  to  below.) 

Instructions  .for  Closing 

(See  also  Instructions  for  Closing  at  the  end  of  Problem  1, 
Fay^s  1916  accounts.) 

1.  Post  all  entries  from  the  cash  journal  to  the  ledger  before 
framing  journal  entries  for  the  feed,  labor  and  horse  labor 
distributions. 

2.  Take  a  trial  balance  to  test  the  accuracy  of  the  work  be- 
fore closing. 

3.  Make  a  journal  entry  debiting  the  elements  named  below 
and  crediting  Rent,  to  distribute  the  $500  rent  over  the  several 
farm  elements  on  a  basis  of  the  following  percentages:  House- 
hold 3f7,  cattle  4%,  hogs  5%,  horses  4%,  poultry  2%,  com 
32%,  oats  15%,  wheat  10%,  hay  12%,  pasture  10%,  equip- 
ment 1%,  miscellaneous  elements  (debit  General  Expense)  2%. 

4.  Calculate  and  enter  interest  on  investment  for  the  year, 
considering  4%  on  the  equipment  and  on  each  class  of  live- 
stock. 

5.  Make  an  entry  for  equipment  depreciation  during  the  year 
calculated  at  10%  diminishing  value  method.  (Debit  Equip- 
ment  Expense,  credit   Equipment.) 


COST  ACCOUNTING 


805 


6.  Post  all  entries  made  under  instructions  3,  4  and  5  above. 

7.  Make  an  entry  for  the  value  of  commodities  fed  to  live- 
stock during  the  year,  using  the  results  stated  previously  in 
this  problem.     Post  the  items  in  the  entry  just  made. 

8.  Use  the  results  given  for  the  Year's  Labor  Record  as  a 
basis  for  a  journal  entry,  being  careful  to  use  both  the  debit 
and  credit  exchange  labor  items  correctly,  as  in  problem  1,  Mr. 
Fay's  1916  accounts. 

9.  Make  a  journal  entry  from  the  results  of  the  Yearly  Horse 
Labor  Record,  using  Mr.  Fay's  1916  accounts  in  problem  1  as  a 
guide  if  necessary. 

10.  Post  the  entries  made  under  instructions  8  and  9  above. 

11.  Make  an  entry  distributing  the  balance  of  Equipment 
Expense  over  the  various  farm  elements  following  the  sugges- 
tions given  in  instructions  11  (a)  and  11  (b)  in  the  1916  ac- 
counts of  L.  E.  Fay.    Post  the  entry. 

12.  Make  entries  to  close  Labor,  Exchange  Labor  and  Equip- 
ment Expense  accounts.     Post. 

13.  There  is  no  inventory  of  Mill  Feed.  Make  a  journal  entry 
to  close  the  account  into  General  Expense  account.  Post  the 
entry  and  rule  off  the  Mill  Feed  account. 

14.  Close  Interest  account  into  General  Expense.  Distribute 
the  General  Expense  balance  over  the  various  productive  ele- 
ments by  journal  entry  according  to  the  following  propor- 
tions: cattle  5%,  hogs  7%,  poultry  3%,  oats  20%,  hay  15%, 
corn  35%,  wheat  15%.    Post  the  entry. 

15.  Make  entries  direct  in  the  accounts  for  the  following  in- 
ventories: household  furnishings,  $500;  horses,  $1200;  cattle, 
$600;  hogs,  $300;  poultry,  $30;  wheat,  $200;  oats,  $300;  corn, 
$1250;  hay,  $330. 

Transfer  any  balances  remaining  in  the  productive.  House- 
hold and  Horses  accounts  into  Loss  and  Gain  account,  carry- 
ing the  inventories  down  below  the  ruling. 

16.  Close  any  other  accounts  showing  a  gain  or  loss  into  the 
Loss  and  Gain  account.  Pasture  and  Interest  on  Investment  are 
examples. 

17.  Close  Loss  and  Gain  account  into  L.  E.  Fay's  Capital 
account,  ruling  off  the  latter  and  bringing  down  the  balance. 


306 


FARM  ACCOUNTING 


I 


18.  Rule  off  and  bring  down  the  balance  of  Cash  account  and 
of  any  other  property  or  liability  accounts  not  specifically 
treated  above. 

Instructions  after  Closing 

(a)  Take  a  trial  balance  after  closing  which  may  be  consid- 
ered also  as  a  Statement  of  Resources  and  Liabilities  as  of  De- 
cember 31,  1917. 

(b)  Prepare  a  Farm  and  Individual  Income  Statement  for 
the  year. 

(c)  Prepare  a  Change  of  Wealth  Statement  as  of  December 
31,  1917. 

Comparative  Study  op  Problems 

After  completing  the  statements  of  the  business  of  L,  E.  Fay 
under  the  cost  system,  a  comparative  study  is  to  be  made  of 
the  results  obtained  under  the  cost  method  and  under  the  general 
method.  This  is  effected  principally  through  a  study  of  the 
ledger  accounts  of  problems  3  and  4  of  Chapter  VII,  together 
with  the  accounts  of  problems  1  and  2  of  Chapters  VIII  and  IX. 

This  comparative  study  is  a  most  important  step  towards  the 
understanding  of  farm  cost  accounting.  It  was  considered  of 
sufficient  importance  to  warrant  the  repetition  of  L.  E.  Fay's 
general  transactions  in  the  two  sets  of  problems. 

Considerable  time  should  be  spent  in  class  discussion  led  by 
the  instructor.  It  should  be  understood  that  the  comparison  is 
between  the  two  year  period  under  the  cost  and  general  methods, 
and  not  between  1916  and  1917  under  the  same  method.  The 
discussion  should  aim  to  present  and  answer  the  following  ques- 
tions : 

(a)  Were  the  transactions  between  the  farm  and  outside  par- 
ties the  same  under  the  two  methods? 

(b)  Is  the  net  gain  for  1916  the  same  under  both  methods? 
the  net  gain  for  1917? 

(c)  Why  is  there  no  difference,  under  the  general  and  cost 
methods,  in  the  following  accounts:  B.  E.  Adams,  Notes  Re- 
ceivable, Equipment,  Cash,  Roy  Wade,  Watt  Hardware  Co.,  State 
Trust  and  Savings  Bank,  Mortgage  Payable,  Notes  Payable? 


COST  ACCOUNTING 


307 


(d)  In  what  detailed  respects  and  why  are  the  following  ac- 
counts different  under  the  two  methods:  Loss  and  Gain,  Interest 
on  Investment,  Interest,  Horses,  Cattle,  Hogs,  Sheep,  Poultry, 
Mill  Feed,  Com,  Oats,  Wheat,  Hay,  Equipment  Expense,  Gen- 
eral Expense,  Labor,  Pasture,  Exchange  Labor,  and  House- 
hold? 

(e)  Why  is  the  trial  balance  after  closing  the  same  under  the 
two  methods? 

(f)  In  comparing  the  Farm  and  Individual  Income  State- 
ments and  the  Change  of  Wealth  Statements  under  the  two 
methods,  how  do  you  account  for  any  differences  and  similarities 
found  therein? 

(g)  In  general  how  may  the  fundamental  differences  in  the 
results  under  the  two  systems  be  summarized? 

(h)  Which  method  do  you  think  is  the  better?     Why? 

(i)  In  view  of  the  study  made  of  L.  E.  Fay's  productive  ac- 
counts under  the  two  methods,  what  can  you  say  as  to  the  mean- 
ings attached  to  the  words  "gain"  and  "loss"? 

Note. — It  is  the  aim  in  the  several  succeeding  problems  to  con- 
centrate more  on  the  principles  arising  in  cost  accounting  and 
the  closing  process,  and  less  on  the  recording  of  the  more  simple 
entries  which  must  always  arise  in  the  course  of  a  year's  opera- 
tions. The  problems  which  follow  are  adopted  from  the  ac- 
counts of  an  Illinois  farmer,  but  modified  for  the  purpose  of 
illustrating  the  treatment  of  various  principles  in  cost  account- 
ing. 

The  detailed  transactions  with  outsiders  and  with  the  House- 
hold are  stated  in  aggregate  form  except  in  the  case  of  unusual 
transactions.  For  example,  a  transaction  showing  the  cash  pur- 
chase of  $310  worth  of  supplies  for  the  household  is  stated  near 
the  close  of  the  year.  This  means  that,  as  a  matter  of  fact,  the 
farmer  in  question  made  a  number  of  small  purchases  through- 
out the  year,  each  of  which  caused  a  debit  to  Household  and  a 
credit  to  Cash.  Similar  examples  in  the  reduction  of  the  number 
of  entries  might  be  cited  for  General  Expense  items.  Labor 
Items,  products  consumed  by  the  household,  and  other  simple 
transactions  in  which  sufficient  drill  has  been  given  in  problems 
of  the  preceding  chapters. 


■^.! 


[il 


808  FARM  ACCOUNTING 

Although  in  practice  the  Comparative  Inventory  Record  is  kept 
with  a  cost  system  in  the  same  way  as  under  the  general  ac- 
counting system,  its  use  is  not  required  in  these  cost  problems. 

The  details  are  reduced  somewhat,  also,  by  the  method  of  pre- 
senting data  from  the  feed,  labor  and  horse  labor  records.  The 
aggregate  amounts  for  the  year  are  stated  in  the  problems.  The 
figures  so  stated,  it  should  be  noted,  are  taken  from  the  monthly 
feed,  labor  and  horse  labor  records,  which  the  student  is  not  re- 
quired to  prepare  in  regular  form  for  the  purpose  of  these 

problems. 

With  the  simplifications  noted  above,  there  is  little  use  for 
mAny  special  columns  in  the  cash  journal.  Accordingly  it  is  re- 
duced to  the  simplest  type. 

All  notations  as  to  quantities  and  prices  used  in  connection 
with  fields,  crops  and  livestock  are  to  he  carried  into  the  ledger 
accounts  for  use  in  the  problems  of  Chapter  X. 

3.  (Work  on  this  problem  should  not  be  started  until  after 
reading  carefully  the  Note  above.) 

Mr.  C.  P.  May  rents  a  farm  of  270  acres  on  a  cash  basis  for 
$1350  a  year,  from  W.  E.  Reed.  You  are  to  keep  the  accounts 
of  his  operations  on  a  cost  basis  from  the  beginning  of  the  fiscal 
year  Mar.  1,  1915. 

The  farm  plot  at  that  time  shows  that  the  farm  is  divided  into 

the  following  areas: 

Field  No.  1 20  acres 

Field  No.  2 40  acres 

Field  No.  3 60  acres 

Field  No.  4 40  acres 

Field  No.  5 40  acres 

Field  No.  5a 40  acres 

Field  No.  6  (Pasture) 20  acres 

Hog  Lot 2  acres 

Garden  and  House  Lot 2  acres 

Orchard 2  acres 

Bam  Yard 4  acres 

Total 270  acres 


COST  ACCOUNTING  309 

His  resources  and  liabilities  are  ascertained  by  appraisal  as 
follows : 

List  op  Resources  and  Liabiutieb,  Mar.  1,  1915.    C.  P.  May 

Resources  Liabilities 

Cash $191        Notes  Payable: 

Horses  (10) 1,240           To  W.  E.  Reed  $1,350 

Cattle  (14) 500           To  J.  L.  Mix        300   1,650 

Swine(27) 400  

Poultry  (120) 60        C.  P.  May,  Capital  In- 

Com  (580  bu.) 280  vestment $4,526 

Oats  (420  bu.) 120 

Barley  (180  bu.) 90 

Soy  Beans  (1 10  bu.)....  150 

Hay  (Timothy,  18  tons)  130 

Straw  (15  tons) 30 

Silage  (75  tons) 300 

Seed  (Oats,  80  bu.  @  35c ; 

wheat,  80  bu.@  65c)..  80 

Equipment 680 

1915  Rent 1,350 

Field  No.  1    (Rent   $90; 

Labor  $5) 95 

Field  No.  3  (Seed) 40 

Field  No.  4  (Labor  $10; 

Horse  L.  $10) 20 

Field  No.  5  (Labor  $10; 

Horse  L.  $10) 20 

Household  Furnishings . .  400 


$6,176 


$6,176 


Make  an  entry  in  the  cash  journal  to  open  the  books.  Ac- 
counts are  to  be  kept  for  each  item  listed  as  resources  and  lia- 
bilities, except  that  Household  Furnishings  are  to  be  debited  to 
Household  account;  and  only  one  Notes  Payable  account  is  to 
be  used. 


I  r 

I 


am 


SIO 


FARM  ACCOUNTING 


COST  ACCOUNTING 


sn 


The  1915  Rent  item  is  listed  as  a  resource  because  it  is  a  de- 
ferred debit  to  represent  rent  paid  in  advance.  It  was  paid  by 
a  note  or  several  notes,  apparently,  since  the  liability  on  Notes 
Payable  shows  one  in  favor  of  the  landlord  W.  E.  Reed  for 
$1350. 

The  amounts  shown  as  resources  opposite  Fields  Nos.  1,  3,  4 
and  5  respectively  represent  an  estimate  of  the  amount  of  seed 
and  labor  spent  on  them  in  preparation  for  the  crops  of  the  com- 
ing season.  The  charge  to  Field  No.  1  includes  $90  rent  for 
1914,  when  it  lay  fallow. 

Subject  to  the  comments  in  the  Note  preceding  this  problem, 
the  transactions  and  operations  for  the  year  are  stated  below. 
They  are  to  be  entered  in  the  cash  journal. 

Mar.  1.  Distribute  the  rent  over  the  several  Field  and  other 
accounts  affected  on  the  following  basis :  Each  Field  and  Pasture 
account  with  $4.50  an  acre;  Swine  with  $4.50  an  acre  plus  $5 
for  the  building;  Household  with  $4.50  an  acre  for  the  areas 
occupied  by  the  garden,  house  and  orchard  plus  $90  for  the 
dwelling;  General  Expense  with  $4.50  an  acre  for  the  barn- 
yard; Horses  with  $15;  Cattle  $10;  Poultry  $5;  Equipment  Ex- 
pense $5,  and  Com  $5,  each  for  buildings  occupied  by  the 
properties  indicated  by  the  account  titles. 

Mar.  16.  Sold  110  bushels  soy  beans  at  $2  a  bushel,  cash. 

Apr.  4.  Sowed  80  bushels  of  oats  selected  as  seed  at  $1,  in 
Field  No.  4;  also,  in  the  same  field,  8  bushels  of  red  clover  at  $9. 
(Since  the  clover  seed  was  purchased  just  before  sowing,  credit 
cash  and  debit  Field  No.  4  for  its  value.) 

Apr.  6.  Sowed  80  bushels  of  wheat  selected  as  seed  at  $2  in 
Field  No.  2. 

Apr.  18.  Sold  160  bushels  of  barley  for  $112,  cash. 

May  1.  Planted  41/2  bushels  of  com  (including  wastage)  at 
$3.50  in  Field  No.  1.  (This  is  an  exception  to  the  mle,  u;i 
crediting  Corn  account  at  the  price  of  seed.) 

May  5.  Planted  9  bushels  of  com  at  $3.50  in  Field  No.  5a. 

July  1.  Took  80  tons  of  timothy  hay  from  Field  No.  3. 
(Make  notation  of  quantity  only  in  explanation  columns  of  Hay 
and  Field  No.  3  accounts.) 

Aug.  1.  Threshed  the  wheat  from  Field  No.  2.     It  measured 


1050  bushels.  There  was  estimated  to  be  28  tons  of  straw, 
valued  at  $3  a  ton. 

Note. — At  this  time  make  notations  on  the  credit  side  of 
Field  No.  2  account  and  debit  side  of  Wheat  account  showing 
only  the  1050  bushels  without  any  values  extended  into  the  money 
columns.  The  values  will  be  placed  opposite  these  explanations 
at  the  end  of  the  year  when  the  cost  of  operating  Field  No.  2 
has  been  determined.  At  this  time  make  an  entry  in  the  cash 
journal,  debiting  Straw  and  crediting  Wheat  with  $84  for  the 
straw  produced. 

Aug.  3.  Paid  $65  for  expenses  in  threshing  wheat,  including 

coal  and  binder  twine. 

"Aug.  21.  Threshed  the  oats  from  Field  No.  4.  They  measured 
1260  bushels.  There  was  estimated  to  be  34  tons  of  straw 
valued  at  $3.50  a  ton. 

Aug.  22.  Paid  $66.30  for  expenses  in  threshing  oats,  includ- 
ing coal  and  binder  twine. 

Sept.  1.  Received  check  for  $525,  for  500  bushels  of  wheat  at 
$0.85  and  250  bushels  of  oats  at  $0.40. 

Oct.  1.  Used  10  acres  of  com  from  Field  No.  5a  in  silage. 
The  yield  was  estimated  by  test  at  45  bushels  per  acre  and  the 
market  price  was  $0.65  a  bushel. 

Note. — At  this  time  make  notations  in  the  explanation  columns 
on  the  debit  side  of  Com  and  credit  of  Field  No.  5a  account, 
showing  the  total  estimated  number  of  bushels  used.  Then  make 
an  entry  in  the  cash  joumal  debiting  Silage  and  crediting  Corn 
account  with  the  total  value  of  the  com  used  ($292.50).  Ninety 
tons  of  silage  was  produced. 

Oct.  4.  Paid  $25  for  engine  hire  and  coal  in  filling  the  silo. 

Oct.  13.  Received  check  for  60  tons  timothy  hay  at  $9  a  ton, 
hauling  to  be  done  by  the  purchaser. 

Dec.  10.  Com  husking  has  been  finished.  The  20  acres  in 
Field  No.  1  yielded  1180  bushels.  The  remaining  30  acres  of 
Field  No.  5a  yielded  1370  bushels.  (Make  notations  in  the  ex- 
planation columns  only,  at  this  time.) 

Dec.  12.  Sold  apples  and  vegetables  for  $45  cash  (Cr.  House- 
hold for  both). 


'Ji 


i 


E)' 


i 


312 


FARM  ACCOUNTING 


COST  ACCOUNTING 


813 


Dec.  15.  Received  a  check  for  $360  for  600  bu.  of  com  at 
$0.60  a  bushel. 

Dec.  20.  Signed  a  lease  for  another  year  under  the  same 
terms  as  the  present  one,  giving  two  promissory  notes,  one  for 
$700  and  one  for  $650  due  Sept.  1  and  Jan.  1. 

Feb.  10,  1916.  Sold  300  bu.  of  wheat  for  $270  cash. 

Feb.  18.  Sold  500  bu.  of  oats  for  $220  cash. 

Feb.  25.  Sold  1400  bu.  of  com  for  $875  cash. 

Feb.  29.  Other  transactions  ordinarily  entered  from  time  to 
time  as  they  arise,  but  summarized  here  for  the  purpose  of  re- 
ducing details  to  a  minimum,  resulted  in  the  following  aggre- 
gates: (The  date  Feb.  29,  1916,  may  be  used  for  all  of  these 
transactions,  since  they  were  completed  on  a  great  number  of 
different  dates  throughout  the  year.) 

Paid  cash  for  new  equipment  during  the  year,  $80. 

Paid  cash  for  sundry  equipment  repairs,  $25.60. 

Paid  $60  for  mill  feed. 

Paid  $57  for  various  expenses  in  connection  with  horses,  as 
veterinary,  service  fees,  shoeing,  etc. 

Paid  $185  for  a  mare. 

Paid  $80  for  one  Angus  bull. 

Paid  $15  for  various  expenses  in  connection  with  cattle  during 
the  year. 

Received  $30  cash  from  sale  of  poultry  during  the  year. 

Received  $170  as  commission  for  selling  silos.  (Cr.  Silo  Com- 
mission Account.) 

Paid  $10  for  poultry  feed.  (This  is  charged  direct  to  the 
Poultry  at  time  of  purchase,  since  it  is  not  fed  to  any  other 
animals.  Accordingly,  the  feed  record  does  not  contain  any 
reference  to  the  feeding  of  this  special  feed.) 

Paid  $45  for  extra  labor  during  the  year.  (This  requires 
a  debit  to  Labor  at  time  of  payment.  The  value  of  the  work 
of  the  extra  help  is  distributed  over  the  farm  elements  from 
the  labor  record,  the  same  as  for  regular  help.) 

Paid  $1350  to  W.  E.  Reed  to  redeem  notes  without  interest. 

Paid  $307.50  to  J.  L.  Mix  to  redeem  note  with  interest.  (Dr. 
General  Expense  for  the  interest.) 

Paid  $310  for  household  supplies,  furnishings,  clothing,  and 


incidentals  during  the  year,  including  insurance  and  taxes  on 
household  property. 

Paid  $40  for  general  expenses  during  the  year,  including  in- 
surance and  taxes  on  farm  property. 

Paid  $580  cash  for  regular  labor  during,  the  year. 

The  household  supplied  the  hired  help  with  board  and  lodg- 
ing valued  at  $390  during  the  year. 

The  Household  was  charged  during  the  year  with  the  follow- 
ing commodities:  eggs  produced,  300  dozen  at  an  average  farm 
value  of  $0.24  a  dozen;  milk  produced,  12,700  pounds  at  $1.50 
a  cwt. ;  poultry  consumed  valued  at  $15,  pigs  butchered  valued  at 
$50.  (The  garden  cost  is  charged  to  the  Household  through  the 
labor  records.) 

Practically  all  of  the  manure  was  hauled  away  from  the 
barnyard  during  the  year.  It  was  valued  at  $20.  Of  this  amount 
horses  are  to  be  credited  with  $14  and  cattle  with  $6.  It  was 
all  applied  to  Field  No.  3. 

Sales  of  eggs  for  cash  during  the  year  were  $39.20,  being  140 
dozen  at  an  average  price  of  $0.28  a  dozen.  (The  Household 
was  charged  with  ail  eggs  gathered.) 

Sales  of  butter  for  cash  amounted  to  $234,  being  780  lbs.  at 
$0.30.     (The  Household  was  charged  with  all  milk  produced.) 

Sold  two  calves  for  $58  cash. 

The  household  supplied  6500  pounds  of  skim  milk  for  the 
chickens,  pigs  and  calves  during  the  year,  at  15c  per  cwt.  as 
follows:  chickens,  500  lbs.;  pigs,  5000  lbs.;  and  calves  1000  lbs. 

The  proprietor  valued  his  services  as  a  laborer  at  $600  for 
the  year.  The  time  of  his  wife  spent  in  caring  for  poultry  is 
estimated  at  $45.  (This  is  not  recorded  in  Labor  record,  hence 
is  charged  now  to  Poultry  account.) 

Sorted  out  15  bushels  of  com  for  seed,  the  market  value  of 
which  was  $0.63  a  bushel. 

The  feed  record  for  the  year  showed  the  following  values  to 
be  expressed  as  debits  and  credits:  Debits  to  livestock:  horses, 
$490;  cattle,  $470;  swine,  $560;  poultry,  $28.  Credits  to  crop 
and  feed  accounts:  Corn,  981  bu.  at  62c,  $608.22;  oats,  450  bu. 
at  42c,  $189;  barley,  15  bu.  at  65c,  $9.75;  hay,  15  tons  at  $8.75, 
$131.25;   wheat,  50  bu.  at  85c,  $42.50;  silage,  80  tons  at  $4, 


814 


FARM  ACCOUNTING 


$320;  mill  feed  including  salt,  $47.28;  Field  No.  6  (Pasture), 
3500  days  at  5c,  $175;  by-products,  500  days  at  5c,  $25. 

Straw  used  for  bedding  was  valued  at  $20,  being  3  tons  used 
for  cattle  and  7  tons  for  horses,  each  calculated  at  $2  a  ton. 

The  labor  record  for  the  year  showed  the  following  hours 
spent  on  each  farm  element:  cattle,  710;  horses,  500;  swine, 
420 ;  poultry,  20 ;  com,  480 ;  oats,  370,  of  which  160  hours  were 
worked  by  neighbors;  wheat,  405,  of  which  180  hours  were  worked 
by  neighbors;  barley,  30;  soy  beans,  20;  hay,  580,  of  which  60 
hours  were  worked  by  neighbors;  mill  feed,  8;  silage,  380,  of 
which  40  hours  were  worked  by  neighbors;  Field  No.  1,  325; 
Field  No.  2,  240;  Field  No.  3,  15;  Field  No.  4,  205;  Field  No.  5a, 
590;  seed,  7;  exchange  labor  (for  neighbors),  455;  household 
(including  time  spent  by  laborers  and  proprietor  on  garden  and 
orchard),  270;  silo  agency  (Dr.  Silo  Commission  account),  110; 
Equipment  Expense,  130;  General  Expense,  435;  Field  No.  2- 
1916,  85 ;  Field  No.  3-1916,  130. 

Note:  Make  a  separate  entry  for  the  Field  No.  2-1916,  and 
Field  No.  3-1916,  labor.  In  posting,  however,  post  to  Field  No.  2 
and  Field  No.  3  accounts,  respectively,  and  indicate  in  the  ledger 
explanation  columns  that  they  are  for  1916.  They  will  then  be 
considered  as  inventories  to  carry  down  at  the  close  of  the  year. 
The  horse  labor  record  for  the  year  showed  the  following 
hours  spent  on  each  farm  element:  cattle,  105;  swine,  80;  com, 
900;  oats,  260,  of  which  100  hours  were  by  neighbors'  horses; 
wheat,  325,  of  which  120  hours  were  by  neighbors'  horses;  bar- 
ley, 35;  soy  beans,  25;  hay,  490;  mill  feed,  15;  silage,  240; 
Field  No.  1,  900;  Field  No.  2,  535;  Field  No.  3,  10;  Field  No.  4, 
575;  Field  No.  5a,  1455;  exchange  labor  (for  neighbors),  230; 
household,  200;  silo  agency,  40;  equipment  expense,  20;  general 
expense,  290;  Field  No.  2-1916,  255;  Field  No.  3-1916,  390. 

INSTRUCTIONS  FOR  CLOSING 

1.  Make  entries  in  the  cash  journal  for  all  transactions  up  td 
but  exclusive  of  those  for  the  feed  record. 

2.  Post  all  entries  made,  leaving  a  full  page  for  each  account, 
to  take  care  of  items  in  two  succeeding  years. 


COST  ACCOUNTING 


815 


3.  Take  a  trial  balance. 

4.  Calculate  and  make  an  entry  in  the  cash  joumal  for  interest 
on  investment  for  the  year.  This  implies  4  per  cent,  on  the 
value  of  each  class  of  livestock  and  on  equipment  as  at  the  be- 
ginning of  the  year.    Post  the  entry. 

5.  Make  an  entry  for  depreciation  of  equipment  at  10  per  cent, 
for  the  year.    Post  the  entry. 

6.  Make  an  entry  in  the  cash  journal  to  express  debits  and 
credits  for  feed  and  bedding  consumed  by  livestock.  Post  the  entry. 

7.  Place  the  labor  and  horse  labor  hours  in  order  for  further 
calculations.  This  may  be  done  in  the  place  ordinarily  reserved 
for  these  records  in  some  such  form  as  this: 


Labor  Summary 


Hours 

Cattle 710 

Horses 500 

etc. 

Oats /   (1^) 

\     210 

etc 

Total ((^40) 

\  6480 


Value 


Horse  Labor  Summary 


Hours 

Cattle 105 

Swine 80 

etc. 

Total /    (220) 

I  7,155 


Value 


Value  of 
Equip.  Exp. 


8.  Calculate  the  hourly  cost  of  labor.    This  is  done  by  divid- 
ing the  total  cost  of  labor  for  the  year  by  6480,  the  number  of 


Pi 


i 


316 


FARM  ACCOUNTING 


hours  worked  by  the  men  whose  time  was  charged  to  Labor  ac- 
count. Use  the  hourly  rate  only  to  the  nearest  cent.  For  ex- 
ample, a  result  of  21.6  cents  would  be  used  as  22  cents. 

Using  the  hourly  rate  just  determined  and  with  the  assistance 
of  the  Labor  Conversion  Table  of  Illustration  75,  Appendix, 
calculate  the  value  of  labor,  for  each  farm  element.  Record 
the  amounts,  for  convenience  on  the  paper  as  described  under 
instruction  7,  above. 

Note. — The  values  calculated  for  the  various  farm  elements 
are  self  proving  to  a  certain  extent.  After  finding  that  the 
value  of  labor  spent  on  horses  is  $177.50  and  so  on,  the  sum  of 
all  the  values  not  in  parentheses  should  equal  the  total  hours, 
6480,  multiplied  by  the  hourly  rate.  Likewise  the  total  of  the 
values  in  parentheses  (work  by  neighbors)  should  equal  the 
total  hours  in  parentheses,  440,  multiplied  by  the  hourly  rate. 

9.  Make  a  journal  entry  debiting  the  various  elements  with 
the  value  of  labor  calculated  in  8  above,  and  crediting  Labor 
and  Exchange  Labor  accounts  each  with  the  proper  amounts. 
Post  the  entry. 

10.  Calculate  the  hourly  cost  of  horse  labor.  This  is  done  by 
dividing  the  net  cost  of  keeping  horses  by  7155,  the  total  hours 
worked  by  the  horses  for  which  the  expense  was  incurred.  (The 
cost  of  keeping  horses  includes  the  charges  for  rent,  sundry  cash 
expenses,  interest  on  investment,  bedding,  feed  and  labor;  with  a 
deduction  made  for  manure.  It  does  not  include  the  inventory 
value  of  horses  on  hand  at  the  beginning  nor  the  cost  of  any 
purchased  during  the  year.) 

Using  the  hourly  rate  just  determined,  calculate  the  value  of 
horse  labor  for  each  farm  element.  Record  the  amounts,  for  con- 
venience, on  the  paper  as  described  under  instruction  7,  above. 

11.  Make  a  journal  entry  debiting  the  various  elements  with 
the  value  of  horse  labor  calculated  in  10  above,  and  crediting 
Horses  and  Exchange  Labor  accounts  each  with  the  proper 
amounts.    Post  the  entry. 

12.  Find  the  net  charge  to  Equipment  Expense  account  for 
the  year.  (Supplies  of  axle  grease,  machine  oil  and  other  sup- 
plies are  too  small  to  consider  for  inventory  purposes.)  Divide 
this  amount  by  7155,  the  hours  worked  by  the  farm  horses.    This 


COST  ACCOUNTING 


317 


result  gives  the  approximate  cost  of  maintaining  the  equipment 
for  each  hour  of  its  use. 

Using  the  hourly  rate  to  the  nearest  cent,^  as  just  determined, 
proceed  to  make  an  entry  debiting  the  various  farm  elements 
for  the  use  of  the  equipment,  based  on  the  number  of  hours  it 
was  used  on  each  element,  crediting  Equipment  Expense  and 
Exchange  Labor  accounts.  (This  process  will  be  accomplished 
best  by  using  the  third  column  shown  under  Horse  Labor  Sum- 
mary under  instruction  7  above  before  framing  the  journal  entry. 
This  method  takes  the  place  of  the  one  described  under  "Equip- 
ment Expense"  and  shown  in  Illustration  53.)  (See  also  instruc- 
tion 11,  problem  1,  Chapters  VIII  and  IX.)     Post  the  entry. 

13.  Calculate  and  enter  the  inventories  of  fertilizer,  labor, 
horse  labor  and  other  charges  to  field  accounts,  which  are  to  be 
carried  over  to  next  year's  operations. 

In  field  No.  1  consider  that  the  com  crop  of  the  year  just 
closing,  received  40  per  cent,  of  the  benefit  of  the  soil  from  its 
lying  fallow  the  year  before.  This  means  that  60  per  cent,  of 
$90  (the  rent  for  the  year  1914),  or  $54,  is  to  be  carried  down 
as  an  inventory.  All  of  the  1915  rent  remains  as  a  charge  to  the 
operations  of  the  current  year. 

In  fields  No.  2  and  No.  3  the  inventories  consist  in  each  case 
of  the  three  items  noted  in  the  explanation  column  of  the  ledger 
as  Labor-1916,  Horse  Labor-1916  and  Equipment  use-1916. 
These  should  be  shown  as  separate  items  both  above  and  below 
the  rulings.  All  of  the  manure  applied  on  field  No.  3  during 
the  year  is  carried  over  as  a  deferred  charge,  since  it  was  ap- 
plied after  harvesting  the  crop  of  the  current  year. 

The  clover  seed  of  field  No.  4  is  considered  as  an  inventory 
or  deferred  charge.  No  labor  is  carried  over  for  this,  for  it 
was  sown  with  the  oats. 

Since  there  were  no  transactions  with  field  No.  5  after  open* 
ing  the  books  on  March  1,  1915,  all  of  the  debit  balance  is  to 
be  treated  as  an  inventory.     By  leaving  the  account  exactly  as 

*  Dropping  the  fractional  part  of  a  cent  results  in  a  distribution 
of  Equipment  Expense  amounting  to  about  $15  or  $20  less  than  th© 
balance  of  the  account.  This  difference  is  distributed  later  through 
General  Expense  account.    See  instruction  14  below. 


J 


818 


FARM  ACCOUNTING 


i 


it  is,  the  next  year's  operations  are  charged  with  the  cost  of 
permitting  the  field  to  lie  fallow.  At  the  close  of  the  next  year, 
part  of  this  expense  will  be  carried  over  to  subsequent  years, 
to  show  the  benefit  they  derive  from  having  it  lie  fallow  during 
the  current  year. 

After  recording  the  inventories  as  outlined  above,  the  result- 
ing balance  of  each  of  the  field  accounts  on  which  crops  were 
raised  during  the  year  shows  the  cost  of  producing  such  crops. 
This  cost  is  now  transferred  to  the  Crop  accounts  by  making 
entries  in  the  money  columns  only,  debiting  the  several  crop 
accounts  and  crediting  the  respective  field  accounts.  Notations 
have  already  been  made  in  the  explanation  columns  at  the  time 
of  harvest.  The  unit  cost  should  now  be  recorded  in  the  ex- 
planation column  also.  (See  Illustration  52.)  Bring  the  in- 
ventories of  fields  down  below  the  rulings. 

14.  Transfer  to  General  Expense  account  by  journal  entry 
any  balance  (presumably  quite  small)  remaining  in  Mill  Feed 
account  after  entering  and  bringing  down  an  inventory  of  $10. 

Also  transfer  the  balances  of  Equipment  Expense,  Labor, 
and  Exchange  Labor  into  General  Expense  account,  by  journal 
entry.    Post  the  entries,  and  rule  off  the  accounts  closed. 

15.  Distribute  by  journal  entry  the  general  expenses  over 
the  productive  elements,  using  the  following  percentages  for  the 
purpose  of  obtaining  uniformity:  cattle  20%,  swine  15%,  poul- 
try 1%,  com  15%,  oats  12%,  wheat  15%,  barley  1%,  soy 
beans  1%,  hay  20%.  Post  the  entry,  ruling  off  the  General 
Expense  account. 

16.  Make  entries  for  the  following  inventories  of  livestock  and 
commodities  on  hand  at  the  close  of  the  year,  transferring  by 
journal  entry  to  Loss  and  Gain  account  the  balances  of  all  ac- 
counts open  on  the  books  that  show  either  a  loss  or  gain.  Post  the 
entries,  making  sure  that  all  necessary  accounts  are  ruled  off 
and  balances  or  inventories  brought  down.  Inventories  Feb. 
29,  1916:  Horses  (13),  $1625;  cattle  (16),  $575;  swine  (50), 
$930;  poultry  (110),  $55;  corn,  100  bu.  at  38c  (cost),  $38;  oats, 
450  bu.  at  49c  (cost),  $220.50;  wheat,  190  bu.  at  67c  (cost), 
$127.30;  barley,  none  on  hand;  hay,  23  tons  at  $7.10  (cost), 
$163.30;  straw,  65  tons  at  $3   (book  value),  $195;  silage,  85 


COST  ACCOUNTING 


319 


tons  at  $4.95  (cost),  $421.30;  seed,  15  bu.  com  at  63c,  plus 
cost  of  sorting  ($1.75),  a  total  of  $11.20,  being  neariy  75c  per 
bushel;  household  furnishings,  $400. 

Note. — Do  not  neglect  to  bring  down  balances  in  the  Cash  and 
Equipment  accounts;  nor  to  close,  among  others,  the  balances 
of  Soy  Beans,  Bariey,  Field  No.  6  (Pasture),  Silo  Commis- 
sion, Interest  on  Investment  and  By-products  into  Loss  and  Gain 
account.  The  1916  Rent  account  is  a  deferred  debit  to  be  con- 
sidered as  a  resource. 


INSTRUCTIONS  AFTER  CLOSING 

(a)  Take  a  trial  balance  which  will  serve  also  as  a  State- 
ment of  Resources  and  Liabilities. 

(b)  Study  the  accounts.  What  do  they  tell  you  about  the 
year's  operations? 

(c)  Preserve  all  books,  accounts  and  records  for  use  in  the 
two  problems  following  which  are  continuations  of  this  one; 
and  for  use  in  the  problems  of  Chapter  X  which  call  for  further 
analysis  of  these  accounts. 

4.  You  are  to  keep  the  books  for  C.  P.  May  for  the  year 
ended  Feb.  28,  1917,  following  the  same  general  principles  used 
in  the  preceding  year  as  in  problem  3  above. 

Mar.  1,  1916.  Distribute  the  rent  over  the  several  Field  and 
other  accounts  affected  on  the  same  basis  as  at  the  beginning  of 
the  preceding  year.     (See  problem  3  above.) 

Apr.  6.  Sowed  105  bu.  of  oats  at  50c  a  bushel  in  field  No.  3; 
also,  in  the  same  field,  12  bushels  of  red  clover  at  $9.  (The 
clover  seed  was  purchased  for  cash  at  time  of  sowing.) 

Apr.  8.  Sowed  70  bushels  of  wheat  at  90c  a  bushel  in  field 
No.  2. 

May  2.  Planted  4  bushels  of  seed  corn  at  $3.40  in  field 
No.  1. 

May  6.  Planted  71/2  bushels  of  seed  com  at  $3.40  in  field 
No.  5. 

June  4.  Paid  for  42  bushels  of  medium  yellow  soy  beans  at 
^"2.2.'),  f.rd  planted  them  in  field  No.  5a. 


i'  1 

t 


I    1 


i; 


II 


i 


« 


320 


FARM  ACCOUNTING 


July  10.  Took  70  tons  of  clover  hay  from  field  No.  4. 

Aug.  10.  Threshed  the  wheat  from  field  No.  2.  It  measured 
960  bushels.  There  was  estimated  to  be  25  tons  of  straw  valued 
at  $3  a  ton. 

Aug.  10.  Paid  $57  for  threshing  expenses  in  connection  with 
wheat. 

Aug.  20.  Threshed  the  oats  from  field  No.  3.  They  measured 
2220  bushels.  There  was  estimated  to  be  54  tons  of  straw  at 
$3  a  ton. 

Aug.  20.  Paid  $73  expenses  for  threshing  oats. 

Oct.  8.  Used  10  acres  of  com  from  field  No.  1  in  silage.  The 
yield  was  estimated  by  test  at  50  bushels  per  acre,  and  the 
market  price  was  70c  a  bushel.  Ninety-five  tons  of  silage  were 
produced.      (See  similar  transaction  in  problem  3.) 

Oct.  15.  Paid  $26  for  engine  hire  and  coal  in  filling  the  silo. 

Oct.  15.  Harvested  640  bu.  soy  beans  from  field  No.  5a;  also 
%  ton  of  soy  bean  hay  valued  at  $16  a  ton  and  22  tons  of  soy 
bean  straw  valued  at  $3  a  ton.  (Enter  as  in  case  of  wheat 
straw,  debiting  Hay  and  Straw  accounts.) 

Oct.  17.  Sold  all  of  the  soy  bean  hay  and  soy  bean  straw  for 
cash,  at  the  prices  used  in  the  valuation  at  time  of  harvest. 

Dec.  2.  Com  husking  resulted  in  the  following  memorandum 
report  being  submitted  for  entry:  The  remaining  10  acres  of 
field  No.  1  yielded  530  bushels.  The  40  acres  of  field  No.  5 
yielded  2520  bushels. 

Feb.  28,  1917.  Other  transactions  of  the  year,  ordinarily 
entered  from  time  to  time  as  they  arise,  but  summarized  here 
for  the  purpose  of  reducing  details  to  a  minimum,  resulted  in 
the  following  aggregates: 

Sold  5250  lbs.  of  hogs  (30)  at  $10  per  cwt.  for  cash. 

Sold  20,000  pounds  of  milk  direct  to  the  creamery  and  re- 
ceived $350  cash.  (When  sold  direct  to  the  creamery  do  not 
consider  it  as  passing  through  the  household.  The  latter  is 
debited  only  for  what  it  uses  under  such  conditions.) 

Sold  300  bushels  of  soy  beans  at  $2.50  cash. 

Sold  800  bushels  of  wheat  at  $1.40  cash. 

Sold  1800  bushels  of  oats  at  50c  cash. 

Sold  1700  bushels  of  com  at  $1  cash. 


COST  ACCOUNTING 


821 


Paid  $1350  to  redeem  the  two  notes  held  by  landlord. 

The  Household  was  charged  with  the  following  commodities: 
eggs  produced,  310  dozen,  at  an  average  farm  value  of  25  cents 
a  dozen;  milk  consumed,  3000  lbs.,  at  $1.60  per  cwt.;  poultry 
consumed,  $16;  pigs  butchered,  $55. 

Sales  of  eggs  for  cash  during  the  year  amounted  to  $49.30, 
being  170  dozen  at  an  average  price  of  29c  a  dozen. 

The  household  received  $55  from  the  sale  of  fruit  and  vege- 
tables during  the  year. 

Paid  cash  for  new  equipment  during  the  year,  $20. 

Paid  $30  for  equipment  repairs,  oil,  etc. 

Sundry  expenses  paid  for  horses  amounted  to  $45. 

Sold  two  colts  for  $280  cash. 

Paid  $25  for  various  expenses  in  connection  with  cattle. 

Received  $35  from  sale  of  poultry  during  the  year. 

Commission  for  selling  silos,  amounting  to  $120,  was  received 
in  cash. 

Paid  $15  for  special  poultry  feed. 

Paid  $25  for  extra  labor  during  the  year. 

Paid  $405  for  household  supplies,  fumishings,  clothing  and 
incidentals. 

General  Expenses  paid  in  cash  amounted  to  $32. 

Paid  $550   for  regular  labor  during  the  year. 

The  household  supplied  the  hired  help  with  board  and  lodging 
valued  at  $370. 

Manure  hauled  to  field  No.  5  was  valued  at  $20,  of  which  $14 
is  to  be  credited  to  horses  and  $6  to  cattle. 

An  old  straw  stack  was  spread  over  field  No.  1,  value  $20, 
estimated  at  ten  tons. 

Sold  two  calves  for  $46  cash. 

The  proprietor  valued  his  services  as  a  laborer  at  $600  for 
the  year.  The  time  spent  by  his  wife  in  caring  for  poultry  was 
valued  at  $45. 

Sorted  out  15  bushels  of  com  for  seed,  the  market  value  of 
which  was  $1  a  bushel. 

Straw  used  for  bedding  was  valued  at  $34.50,  being  31/2  tons 
for  cattle  and  8  tons  for  horses,  each  calculated  at  $3  a  ton. 

The  feed  record  for  the  year  showed  the  following  values,  to 


322 


FARM  ACCOUNTING 


* 


be  expressed  as  debits  and  credits:  Debits  to  livestock:  horses, 
$630;  cattle,  $565;  swine,  $586.70;  poultry,  $26.  Credits  to 
crop  and  feed  accounts:  corn,  300  bu.  at  95c,  $285;  oats  720  bu. 
at  48c,  $345.60;  hay  17  tons  at  $9,  $153;  wheat,  100  bu.  at  $1.30, 
$130 ;  seed,  31/2  bu.  of  com  sorted  but  not  planted,  at  80c,  $2.80 ; 
silage,  85  tons  at  $4.95,^  $421.30;  mill  feed,  $10,  soy  beans 
100  bu.  at  $2.50,  $250;  field  No.  6  (pasture),  3600  days  at  5c, 
$180;  by-products,  600  days  at  5c,  $30. 

The  labor  record  for  the  year  showed  the  following  hours 
spent  on  each  farm  element:  Cattle,  730;  horses,  510;  swine, 
460;  poultry,  20;  com,  450;  oats,  500,  of  which  190  hours  were 
worked  by  neighbors;  wheat,  390,  of  which  180  hours  were 
worked  by  neighbors;  soy  beans,  330,  of  which  130  were  worked 
by  neighbors;  hay,  390,  of  which  70  hours  were  worked  by 
neighbors;  silage,  400,  of  which  70  hours  were  worked  by 
neighbors;  field  No.  1,  360;  field  No.  2,  120;  field  No.  3,  150; 
field  No.  4,  10;  field  No.  5,  320;  field  No.  5a,  240;  seed,  8;  ex- 
change labor  (for  neighbors),  620;  household,  340;  silo  agency, 
80;  equipment  expense,  140;  general  expense,  310;  field  No.  2- 
1917,  60;  field  No.  4-1917,  80. 

The  horse  labor  record  for  the  year  showed  the  following 
hours  spent  on  each  farm  element :  Cattle,  100 ;  swine,  100 ;  corn, 
840;  oats,  360,  of  which  130  hours  were  worked  by  neighbors* 
horses;  wheat  320,  of  which  120  hours  were  worked  by  neigh- 
bors* horses;  soy  beans,  420,  of  which  170  hours  were  worked 
by  neighbors*  horses;  hay,  330;  silage,  240;  field  No.  1,  1000; 
field  No.  2,  320;  field  No.  3,  400;  field  No.  4,  10;  field  No.  5, 
950;  field  No.  5a,  700;  exchange  labor  (for  neighbors),  400; 
household,  300;  silo  agency,  30;  equipment  expense,  20;  gen- 
eral expense,  260;  field  No.  2-1917,  240;  field  No.  4-1917,  260. 

INSTRUCTIONS   FOR   CLOSING 

1.  Make  entries  in  the  cash  journal  for  all  transactions  up 
to  but  exclusive  of  those  for  the  feed  record. 

*  Note  that  this  is  the  quantity  and  value  of  silage  on  hand  at  the 
beginning  of  the  year,  which,  being  shown  at  cost,  amounted  to 
slightly  more  than  $4.95  per  ton. 


COST  ACCOUNTING 


323 


2.  Post  all  entries  made,  being  sure  to  show  details  in  ex- 
planation columns  of  the  field  and  productive  accounts  for  later 
analysis. 

3.  Take  a  trial  balance. 

4.  Calculate  and  make  an  entry  in  the  cash  journal  for  in- 
terest on  investment  for  the  year.  This  implies  4%  on  the  value 
of  each  class  of  livestock  and  on  equipment  as  at  the  beginning 
of  the  year.     Post  the  entry. 

5.  Make  an  entry  for  depreciation  of  equipment  at  10%  for 
the  year.     Post  the  entry. 

6.  Make  an  entry  in  the  cash  journal'  to  express  debits  and 
credits  for  feed  consumed  by  livestock.    Post  the  entry. 

7.  Place  the  labor  and  horse  labor  hours  in  order  for  further 
calculations.  This  may  be  done  as  shown  under  instruction  7, 
problem  3. 

8.  Calculate  the  hourly  cost  of  labor.  Using  the  hourly  rate 
just  determined,  and  with  the  assistance  of  the  Labor  Conversion 
Table,  Illustration  75,  Appendix,  calculate  the  value  of  labor  for 
each  farm  element.  Record  the  amounts,  for  convenience,  on  the 
paper  as  described  under  instruction  7,  problem  3. 

9.  Make  a  journal  entry  for  the  value  of  labor  calculated  in 
instruction  8.    Post  the  entry. 

10.  Calculate  the  hourly  cost  of  horse  labor.  Using  the 
hourly  rate  just  determined,  calculate  the  value  of  horse  labor 
for  each  farm  element.  Record  the  amounts,  for  convenience, 
on  the  paper  as  described  under  instruction  7,  problem  3. 

11.  Make  a  journal  entry  for  the  value  of  horse  labor  cal- 
culated in  instruction  10.     Post  the  entry. 

12.  Calculate  the  cost  per  hour  of  maintaining  equipment 
during  the  year,  as  explained  under  instruction  12,  prob- 
lem 3. 

Using  the  hourly  equipment  rate  as  just  determined,  make 
an  entry  as  described  under  instruction  12,  problem  3,  to  dis- 
tribute the  expense  over  the  various  farm  elements.  Post  the 
entry. 

13.  Calculate  and  enter  the  inventories  or  deferred  charges 
to  field  accounts  which  are  to  be  carried  over  to  next  year's 
operations. 


I  ti 


S24 


FARM  ACCOUNTING 


In  Field  No.  1  consider  that  30%  of  the  original  $90  rent 
from  1914  was  absorbed  by  the  crop  of  the  current  year  and  that 
the  straw  manure  was  applied  after  harvesting  in  the  current 

year. 

In  Field  No.  3,  consider  as  absorbed  during  the  year  40% 
of  the  manure  applied  in  the  preceding  fall.  This  means  that 
60%  or  $12  is  to  be  carried  down.  All  of  the  value  of  clover 
sown  is  treated  as  a  deferred  charge. 

In  Field  No.  5,  the  $180  rent  during  the  year  the  land  lay  fal- 
low, is  to  be  distributed  over  the  several  succeeding  years  in 
the  same  way  as  an  application  of  manure  would  be.  The 
current  year  bears  40%,  then,  leaving  60%  to  carry  down. 
The  $20   worth   of  manure   was   applied   after   harvesting   the 

crop. 

After  crediting  the  inventories  as  suggested  above,  com- 
plete the  entries  in  the  several  field  and  crop  accounts  to 
show  the  total  and  unit  costs  of  producing  the  crops  in 
the   fields.      Bring    the   inventories    of   fields    down   below   the 

rulings. 

14.  Transfer  the  balances  of  Equipment  Expense,  Labor  and 
Exchange  Labor  into  General  Expense  account,  ruling  off  the 
accounts  closed. 

15.  Distribute  by  journal  entry  the  general  expenses  over 
the  productive  elements,  using  the  following  percentages  for  the 
purpose  of  obtaining  uniformity:  cattle,  20%  ;  swine,  15%  ;  poul- 
try, 1%;  com,  15%;  oats,  15%;  wheat,  12%;  soy  beans,  10%; 
hay,  12%.     Post  the  entry. 

16.  Make  entries  for  the  following  inventories  of  livestock 
and  commodities  on  hand  at  the  close  of  the  year,  transferring 
by  journal  entry  to  Loss  and  Gain  account,  the  balances  of  all 
accounts  open  on  the  books  that  show  either  a  loss  or  a  gain. 
Post  the  entries,  making  sure  that  all  necessary  accounts  are  ruled 
off  and  balances  or  inventories  brought  down.  Inventories  Feb. 
28,  1917:  Horses  (12),  $1500;  cattle  (17),  $610;  swine  (52), 
$990;  poultry  (110),  $55;  com,  1100  bu.  at  32c.  (cost),  $352; 
oats,  40  bu.  at  35c  (cost),  $14.00;  wheat,  175  bu.  at  61c  (cost), 
$106.75;  soy  beans,  235  bu.  at  92c  (cost),  $216.20;  hay  75 
tons  at    $6.07    (cost),  $455.25;    straw,    120   tons   at  $3,   $360; 


COST  ACCOUNTING 


325 


silage,  95  tons  at  $5.32  (cost),  $505.60;  seed,  15  bu.  com  at  $1, 
plus  cost  of  sorting  ($1.92),  a  total  of  $16.92,  being  nearly 
$1.13  a  bushel;   household  furnishings,  $400. 

INSTRUCTIONS  AFTER  CLOSING 

(a)  Take  a  trial  balance  which  will  serve  also  as  a  Statement 
of  Resources  and  Liabilities  as  of  Feb.  28,  1917. 

(b)  Study  the  accounts  carefully.  Compare  them  with  the 
corresponding  ones  of  the  preceding  year.  Scrutinize  the  Loss 
and  Gain  accounts  of  the  two  years  together.  Do  the  same 
with  the  two  trial  balances  after  closing. 

(c)  Preserve  the  books,  accounts  and  records  for  use  in  the 
problem  following,  which  is  a  continuation  of  Mr.  May's  busi- 
ness; and  for  the  problems  of  Chapter  X,  which  call  for 
further  analysis  of  these  accounts. 

5.  You  are  to  keep  the  books  for  the  farming  business  of 
Mr.  May  for  the  third  successive  year  Mar.  1,  1917,  to  Feb.  28, 
1918,  following  the  same  general  principles  used  in  the  two 
preceding  years. 

Mar.  1,  1917.  Mr.  May  has  completed  negotiations  for  the 
purchase  of  170  acres  of  the  farm  from  W.  E.  Reed  for 
$21,700,  being  at  the  rate  of  $110  an  acre  with  an  additional 
$3000  for  the  improvements.  The  price  includes  all  expenses  in 
connection   with   the   purchase. 

In  meeting  the  purchase  price  he  pays  $3200  in  cash,  bor- 
rows $10,000  on  a  6%  20-year  first  mortgage  note  (interest 
payable  annually)  under  the  Federal  Farm  Loan  Act,  through  a 
local  National  Farm  Loan  Association;  and  gives  W.  E.  Reed  a 
second  6%  mortgage  for  $8500  to  run  ten  years  with  the  privi- 
lege of  paying  off  the  principal  in  multiples  of  $100  on  any 
interest  pajdng  date.  (A  payment  of  $87.18  each  year  for  20  years 
under  the  amortization  plan  at  6%  is  required  in  order  to  pay  off 
the  principal  and  interest  when  the  principal  is  $1000.  When  the 
principal  is  $10,000,  therefore,  at  the  same  rate  for  the  same 
time,  the  annual  payment  is  $871.80.) 

The  entry  for  the  purchase  should  express  the  following 
debits  and  credits: 


826 


FARM  ACCOUNTING 


I    I 


Land  (170  acres  legal  description  stated) 

Buildings 

Cash 

Mortgage  Payable  (6%— 20  yrs.  Federal) 

Mortgage  Payable  (6%— 10  yrs.  W.  E.  Reed) 

Not  being  able  to  finance  the  purchase  of  more  than  170 
acres,  Mr.  May  did  not  buy  the  100  acres  of  land  designated 
by  him  as  fields  Nos.  5,  5a  and  6.  He  divided  field  No.  3  into 
two  parts,  one  of  20  acres  to  be  reserved  as  a  pasture  and 
called  field  No.  3a,  and  one  of  40  acres  to  be  used  for  crops  and 
called  field  No.  3b.  The  seller  W.  E.  Reed  has  rented  the  other 
100  acres  to  another  man. 

Mar.  1.  Close  Field  No.  3  account  by  journal  entry,  and  open 
accounts  with  Field  No.  3a  and  Field  No.  3b.  This  is  accom- 
plished by  transferring  one-third  of  the  deferred  charge  to  the 
former  and  two-thirds  to  the  latter. 

Mar.  1.  Charge  the  several  farm  elements  with  interest  on 
land  and  buildings,  crediting  Interest  on  Investment,  as  follows: 
4%  on  a  valuation  of  $110  per  acre  (the  cost  price)  is  to  be 
charged  to  each  of  the  several  Field,  Swine,  Household  and 
General  Expense  accounts  on  a  basis  of  the  acreage  presented 
in  problem  3,  and  as  modified  above  for  fields  Nos.  3a  and  3b. 
Charge  4%  on  the  value  of  buildings  to  the  several  elements 
occupying  them,  crediting  Interest  on  Investment,  assumins:  the 
house  valued  at  $1000  and  all  others,  including  the  silo,  at  $2000. 
(Debit  Household  with  the  $40  and  Building  Expense  with  the 
$80.  The  latter  will  be  distributed  over  the  proper  accounts 
at  the  close  of  the  year,  along  with  other  items  of  expense  in 
connection  with  buildings.) 

Apr.  8.  Purchased  70  bushels  of  oats  at  80c  a  bushel,  and 
sowed  them  in  field  No.  2. 

May  4.  Planted  4  bu.  of  seed  corn  at  $3.50  a  bushel  in  field 
No.  1. 

May  8.  Planted  7  bu.  of  seed  corn  at  $3.50  in  field  No.  4. 

July  14.  Took  80  tons  of  clover  hay  from  field  No.  3b. 

Aug.  15.  Threshed  the  oats  from  field  No.  2.     They  measured 


COST  ACCOUNTING 


327 


1630  bu.  There  was  estimated  to  be  40  tons  of  straw  at  $6  a  ton. 

Aug.  15.  Paid  $68  expenses  for  threshing. 

Oct.  10.  Used  10  acres  of  corn  from  field  No.  1  in  silage.  The 
yield  was  estimated  by  test  at  40  bushels  per  acre,  and  the  market 
price  was  $1.40  a  bushel.  Eighty-five  tons  of  silage  were  produced. 

Oct.  10.  Paid  $22  for  engine  hire  and  coal  in  filling  silo. 

Oct.  15.  Took  a  second  crop  of  clover  hay  from  field  No.  3b, 
estimated  at  35  tons. 

Dec.  4.  Com  husking  resulted  in  the  following  memorandum 
report  being  submitted  for  entry:  The  remaining  10  acres  of 
field  No.  1  yielded  400  bushels.  The  40  acres  of  field  No.  4 
yielded  2000  bushels. 

Feb.  28,  1918.  Other  transactions  of  the  year,  ordinarily  en- 
tered from  time  to  time  as  they  arise,  but  summarized  here  for 
the  purpose  of  reducing  details  to  a  minimum,  resulted  in  the 
following  aggregates: 

Sold  5420  lbs.  (27)  of  hogs  at  an  average  price  of  $13.50  per 
cwt.  for  cash. 

Sold  26,000  pounds  of  milk  to  the  creamery,  receiving  $520 

in  cash. 

Sold  170  bushels  of  wheat  for  $382.50. 

Sold  250  bushels  of  oats  for  $150  cash. 

Sold  2000  bushels  of  com  for  $4000  cash. 

Paid  $125  for  baling  100  tons  of  hay  from  stacks  and  field; 
also  paid  $90  for  baling  100  tons  of  straw. 

Sold  100  tons  of  baled  hay,  clover  and  timothy,  at  an  average 
price  of  $15  a  ton  cash. 

Sold  100  tons  of  baled  straw  for  $590  cash. 

The  household  was  charged  with  the  following  commodities: 
eggs  produced,  325  dozen,  at  a  total  value  of  $81 ;  milk  consumed, 
2000  lbs.,  at  a  total  value  of  $38;  poultry  consumed  $12;  pigs 
butchered  $35. 

Sales  of  eggs  for  cash  during  the  year  amounted  to  $65.25, 
being  for  225  dozen. 

The  household  received  $50  from  the  sale  of  fruit  and  vege- 
tables during  the  year. 

Paid  $20  for  equipment  repairs,  oil,  etc. 

Sundry  expenses  paid  for  horses  amounted  to  $35. 


I 

ill 


J 


328  FARM  ACCOUNTING 

Received  $380  from  the  sale  of  two  work  horses  and  one  colt. 

Received  $40  for  equipment  sold  at  inventory  value. 

Paid  $35  for  various  expenses  in  connection  with  cattle. 

Received  $48  from  the  sale  of  poultry  during  the  year. 

Sold  three  calves  for  $60  cash. 

Paid  $18  for  special  poultry  feed. 

Paid  $330  for  household  supplies,  furnishings,  clothing  and 

incidentals. 

General  expenses  amounting  to  $125  were  paid,  including  taxes 

on  all  property,  fence  repairs,  etc. 

Paid  $40  for  building  expenses  during  the  year,  includmg  re- 
pairs and  insurance   (Dr.  Building  Expense). 

Paid  $375  cash  for  labor  during  the  year. 

The  household  valued  board  and  lodging  for  hired  help  at  $275. 

Manure  hauled  to  field  No.  1  was  valued  at  $22,  of  which 
$15  is  to  be  credited  to  horses  and  $7  to  cattle. 

Paid  $871.80  on  the  last  day  of  the  year,  as  the  first  annual 
payment   under   the   amortization   plan   used   ^^^^^^J^^^   ^^  *^^ 
Federal  Farm  Loan  Act.    Under  the  amortization  plan  $600  ot 
this  amount  is  to  pay  the  year's  interest  and  $271.80  is  left  to  ap- 
plv  on  the  principal.    Debit  Interest  on  Investment  with  the 
amount  of  interest,  and  Mortgage  Payable  with  the  payment  ap- 
plicable to  the  reduction  of  principal.  ^    .   i^ 
Paid  $510  to  W.  E.  Reed  for  interest  on  mortgage  note  held 
bv  him;  also  paid  him  $6000  to  reduce  the  principal  in  accord- 
ance with  the  terms  of  the  mortgage  note.     (Dr.   Interest  on 
Investment  with  the  amount  of  the  interest  paid.) 

The  proprietor  valued  his  services  as  a  laborer  at  $600  tor 
the  year.     The  time  spent  by  his  wife  in  caring  for  poultry 

was  valued  at  $45. 

Straw  used  for  bedding  was  valued  at  $65,  bemg  4  tons  for 
cattle  and  9  tons  for  horses,  each  calculated  at  $5  a  ton. 

The  feed  record  for  the  year  showed  the  following  values: 
Debits  to  livestock:  Horses,  $840;  cattle,  $970;  s^^^^,  f35; 
poultry,  $40.  Credits  to  crop  and  feed  accounts:  com,  600  bu. 
at  $1.60,  $960;  oats,  300  bu.  at  55c,  $165;  hay  25  tons  at  $12, 
$300;  seed,  4  bu.  of  corn  sorted  but  not  planted  at  $1.60  $5.40 
silage,  105  tons  at  $5.32,  $558.60;  soy  beans,  230  bu.  at  $^.5U, 


COST  ACCOUNTING 


S29 


$575;  field  No.  3a,  4000  pasture  days  at  5c,  $200;  by-products, 
400  pasture  days  at  5c,  $20. 

The  labor  record  for  the  year  showed  the  following  hours 
spent  on  each  farm  element:  cattle,  640;  horses,  470;  swine,  450; 
poultry,  20 ;  corn,  420 ;  oats,  350,  *  of  which  150  hours  were 
worked  by  the  neighbors;  wheat,  20;  soy  beans,  10;  hay,  580, 
of  which  80  hours  were  worked  by  the  neighbors;  silage,  380,  of 
which  60  hours  were  worked  by  the  neighbors;  field  No.  1,  340; 
field  No.  2,  130;  field  No.  3b,  10;  field  No.  4,  260;  exchange 
labor  (for  neighbors),  300;  household,  380;  equipment  expense, 
140;  general  expense,  450;  field  No.  2-1918,  70;  building  ex- 
pense, 80;  straw,  180. 

The  horse  labor  record  for  the  year  showed  the  following 
hours  spent  on  each  farm  element:  cattle,  80;  swine,  90;  corn, 
800;  oats,  250,  of  which  100  were  worked  by  the  neighbors; 
wheat,  40;  hay,  530;  silage,  250;  field  No.  1,  1050;  field  No.  2, 
340 ;  field  No.  3b,  10 ;  field  No.  4,  830 ;  exchange  labor,  90 ;  house- 
hold, 340;  equipment  expense,  20;  general  expense,  380;  field 
No.  2-1918,  260;  building  repairs,  10;  straw,  180. 

INSTRUCTIONS  FOR   CLOSING 

1.  Make  entries  in  the  cash  journal  for  all  transactions  up 
to  but  exclusive  of  those  for  the  feed  record. 

2.  Post  all  entries  made,  being  sure  to  show  details  in  ex- 
planation columns  of  the  field  and  productive  accounts  for  later 
analysis. 

3.  Take  a  trial  balance. 

4.  Calculate  and  make  an  entry  in  the  cash  journal  for  in- 
terest on  investment  in  movable  property  for  the  year.  This 
implies  4%  on  the  value  of  each  class  of  livestock  and  equip- 
ment as  at  the  beginning  of  the  year.     Post  the  entrj\ 

5.  Make  an  entry  for  depreciation  of  equipment  and  build- 
ings at  10%  and  5%  respectively  for  the  year.  (Depreciation 
of  buildings  is  debited  to  Building  Expense.)     Post  the  entries. 

6.  Make  an  entry  in  the  cash  journal  to  express  debits  and 
credits  for  feed  consumed  by  livestock.     Post  the  entry. 

7.  Place  the  labor  and  horse  labor  hours  in  order  for  further 


^'M 


1 


.11 


FARM  ACCOUNTING 


calculations.     This  may  be  done  as  shown  under  instruction  7, 

problem  3. 

8.  Calculate  the  hourly  cost  of  labor,  and  the  total  value  of 
labor  on  each  farm  element  for  the  year.  Record  the  amounts, 
for  convenience,  on  the  paper  as  described  under  instruction  7, 

problem  3. 

9.  Make  a  journal  entry  for  the  value  of  labor  calculated  in 

instruction  8.     Post  the  entry. 

10.  Calculate  the  hourly  cost^  of  horse  labor,  and  the  total 
value  of  horse  labor  on  each  farm  element  for  the  year.  Record 
the  amounts,  for  convenience,  on  the  paper  as  described  under 
instruction  7,  problem  3. 

11.  Make  a  journal  entry  for  the  value  of  horse  labor  cal- 
culated in  instruction  10.     Post  the  entry. 

12.  Distribute,  by  journal  entry,  the  building  expenses  oyer 
the  various  elements  using  them,  according  to  the  following 
rather  arbitrarily  selected  percentages:  Household,  20%;  swine, 
10%;  cattle,  15%;  horses,  25%;  poultry,  5%;  com,  5%; 
silage,  5%;  equipment  expense,  5%;  hay  10%. 

13.  Calculate  tho  cost  per  hour  of  maintaining  equipment 
during  the  year,  as  explained  under  instruction  12,  problem  3. 

Make  an  entry  to  distribute  the  expense  over  the  various 
farm  elements,  disregarding  any  charge  that  might  be  made  to 
Building  Expense.     Post  the  entry. 

14.  Calculate  and  enter  the  inventories  or  deferred  charges 
to  field  accounts  which  are  to  be  carried  over  to  next  year's 

operations. 

In  Field  No.  1  consider  that  20%  of  the  $90  original  de- 
ferred charge  was  absorbed  by  the  current  year.  This  leaves 
only  10%,  or  $9,  to  carry  down.  Consider  also  that  40%  of  the 
$20  for  manure  was  absorbed  during  this  the  first  year  of  its 
application.    This  leaves  $60%,  or  $12,  to  carry  down. 

Do  not  overiook  the  labor,  horse  labor  and  equipment  use 
items  in  Field  No.  2  for  1918  crops. 

» In  order  to  provide  for  the  proportion  of  building  expense  charge- 
able to  horses  but  not  yet  entered  in  the  account,  add  one  cent  to  the 
hourly  rate  otherwise  calculated.  A  21  cent  rate  is,  therefore,  the 
one  to  apply. 


,1r 


COST  ACCOUNTING 


331 


Disregard  any  deferred  charges  in  Field  No.  3a. 

In  Field  3b,  also,  the  charge  for  manure  is  so  small  that  it 
may  be  disregarded. 

After  crediting  the  inventories  as  suggested  above,  complete 
the  entries  in  the  several  field  and  crop  accounts,  to  show  the 
total  and  unit  costs  of  producing  the  crops  in  the  fields.  Bring 
the  inventories  of  fields  down  below  the  rulings. 

15.  Transfer  the  balances  of  Equipment  Expense,  Labor  and 
Exchange  Labor  into  General  Expense  account,  ruling  off  the 
accounts  closed. 

16.  Distribute,  by  journal  entry,  the  general  expenses  over  the 
productive  elements,  using  the  following  percentages  for  the  pur- 
pose of  obtaining  uniformity:  cattle,  22%;  swine,  15%;  poul- 
try, 1%;  com,  17%;  oats,  15%;  wheat,  5%;  soy  beans,  5%; 
hay,  15%;  straw,  5%.    Post  the  entry. 

17.  Make  entries  for  the  following  inventories  of  livestock  and 
commodities  on  hand  at  the  close  of  the  year,  transferring,  by 
journal  entry,  to  Loss  and  Gain  account  the  balances  of  all  ac- 
counts open  on  the  books  that  show  either  a  loss  or  a  gain. 
This  includes  the  balance  of  Field, No.  5,  which  is  an  extraor- 
dinary loss.  Post  the  entries,  making  sure  that  all  necessary 
accounts  are  ruled  off  and  balances  or  inventories  brought  down. 
Inventories  Feb.  28,  1918:  Horses  (10),  $1250;  cattle  (17),  $610; 
swine  (45),  $900;  poultry  (100),  $50;  com,  900  bu.  at  48.5c 
(cost),  $436.50;  oats-  1100  bu.  at  40c  (cost),  $440;  hay,  60  tons  at 
$6.32  (cost),  $379.20;  straw,  40  tons  at  $6.00,  $240.00;  silage,  75 
tons  at  $9.21  (cost),  $690.92;  household  furnishings,  $400. 

INSTRUCTIONS  AFTER  CLOSING 

(a)  Take  a  trial  balance  which  will  serve  also  as  a  Statement 
of  Resources  and  Liabilities  as  of  Feb.  28,  1918. 

(b)  Study  the  accounts  carefully.  Compare  them  with  the 
corresponding  ones  of  the  two  preceding  years.  Scrutinize  the 
Loss  and  Gain  accounts  of  the  three  years  together.  Do  the 
same  with  the  three  trial  balances  after  closing. 

(c)  Preserve  the  books,  accounts  and  records  for  use  in  the 
problems  of  Chapter  X  which  call  for  further  analysis  of  these 
accounts. 


( 


1. 

2. 
3. 
4. 


382  FARM  ACCOUNTING 

REVIEW  QUESTIONS 

What  is  a  farm  plot?  What  is  its  purpose  from  an  ac- 
counting viewpoint? 

State  three  reasons  for  keeping  an  account  with  each  field  in 
addition  to  one  with  each  crop. 

With  what  amounts  is  a  field  account  debited  at  the  begin- 
ning of  a  year?    During  a  year? 

What  items  are  recorded  on  the  credit  side  of  a  field 
account?  What  are  the  debits  made  at  the  same  time? 
What  does  the  balance  of  a  field  account  show  after  in- 
ventories are  considered? 

5.  Distinguish  between  production  costs  and  harvesting  costs. 

6.  Describe  the  detailed  operation  of  a  field  account,  empha- 

sizing the  time  of  making  entries,  and  recording  of  in- 
ventories or  deferred  charges. 

7.  When  is  a  crop  account  debited?     When  credited? 

8.  How  is  a  crop  inventory  recorded? 

9.  What  does  the  balance  of  a  crop  account  show  after  con- 

sidering inventories? 

10.  Discuss   the  handling  of  the   Silage   account  and  the  rea- 

sons supporting  its  use. 

11.  What  is  the   object   of   a   Seed   account?     When   and   for 

what   value   is   it   debited?     Credited? 

12.  Discuss  the  theory  supporting  the  entries  for  milk,  eggs,  gar- 

den and  other  products  produced  or  used  by  the  house- 
hold. 

13.  How  is  a  pasture  treated  in  the  accounts?    How  does  such 

treatment  differ  from  that  of  other  fields?     Why? 

14.  What  use  is  made  of  the  account  called  By-products? 

15.  What  are  the  two  essential  elements  to  consider  in  distribut- 

ing rent  over  various  farm  elements? 

16.  When  is  the  rent  distributed?     How  is  it  distributed? 

17.  What  difference  is  there  in  the  treatment  of  rent  under  the 

cash  and  share  basis? 

18.  How  would  you  handle  a  transaction  in  which  promissory 

notes  were  given  for  rent  before  the  beginning  of  the 
year  to  which  they  apply? 


COST  ACCOUNTING 


333 


19.  Describe   the   operation   of   the   Rent   Adjustment   account. 

Why  is  such  operation  justified? 

20.  Should  the  cost  of  production  vary  with  the  selling  price  of 

commodities    produced?     Why? 

21.  When  is  the  Equipment  Expense  account  debited? 

22.  How   is    Equipment    Expense    distributed    over   the   several 

farm  elements?     State  both  the  theory  and  the  method. 

23.  Why  is  it  important  to  post  all  debits  and  credits  arising 

from  horse  labor  before  effecting  a  distribution  of  Equip- 
ment Expense  in  the  horse  labor  summary? 

24.  What  distinction  is  sometimes  necessary  in  the  accounts  in 

order  to  keep  the  transactions  with  work  horses  separate 
from  other  horses?     Why  is  such  distinction  made? 

25.  What  are  deferred  charges?     How  are  they  shown  in  the 

accounts? 

26.  How  is  manure  handled  in  the  accounts  when  hauled  from 

the  barnyard  to  the  fields? 

27.  Is  all  of  the  manure  applied  to  a  field  in  a  given  year  con- 

sidered as  a  cost  of  producing  the  next  crop  therein? 
How  are  the  accounts  made  to  show  the  correct  state  of 
affairs  in  this  respect? 

28.  What  treatment  is  advocated  for  losses   and  gains  of  an 

extraordinary  nature? 

29.  Why  is  interest  considered  as  an  element  of  cost?     Under 

what  conditions  would  it  not  be  necessary  to  consider  it 
as  such? 

30.  The  practice  of  considering  interest  as  an  element  of  cost 

has  what  effect  on  the  net  loss  or  gain  as  an  individual  as 
shown  by  the  Loss  and  Gain  account?  What  effect  does 
it  have  on  the  net  loss  or  gain  of  any  specific  produc- 
tive element?  What  effect  on  the  income  as  a  farmer? 
What  effect  on  the  income  due  to  management? 

31.  What   entry   is   made   for   interest   on   land?     Interest   on 

buildings?  Interest  on  livestock?  Interest  on  equip- 
ment? At  what  time  of  the  year  are  each  of  the  entries 
made  for  Interest  on  Investment? 

32.  Compare  charges  for  rent  on  the  books  of  a  tenant  with 


334 


FARM  ACCOUNTING 


A 

i 


the  charges  to  which  they  correspond  on  the  books  of  a 
landlord  operator. 

33.  What  treatment  is  suggested  for  handling  Interest  on  In- 

vestment when  the  property  is  mortgaged? 

34.  Why  is  interest  on  working  capital  not  considered  as  an 

element  of  cost  in  practice?    Should  it  be  theoretically? 

35.  State  briefly  the  object  of  "closing*'  the  books  in  the  way 

they  are  closed  imder  a  cost  system. 

36.  Outline  the  general  plan  of  closing,  emphasizing  the  logical 

order. 

37.  Why  are  the  several  steps  in  the  detailed  procfess  of  closing 

arranged  in  the  order  shown? 

38.  In  what  way  may  one  modify  his  cost  system  in  order  to  get 

reasonable  results  without  numerous  details? 

39.  What  snould  be  done  with  the  ledger  accounts  after  closing? 


CHAPTER  X 
INTERPRETATION  OF  COST  ACCOUNTS 

Importance  of  Correct  Interpretation. — It  is  an  old  say- 
ing that  *  *  Figures  do  not  lie,  but  liars  figure. '  ^  This  would 
be  more  in  accordance  with  facts  if  it  read,  **  Figures  do 
not  lie,  but  their  interpreters  are  inclined  to  make  them 
lie." 

A  large  group  of  figures  assembled  during  the  course 
of  a  year's  operations  on  a  farm  may  be  made  to  tell  a 
great  many  different  things  about  the  farm 's  condition  and 
progress  in  general  or  in  detail.  What  they  tell  depends 
largely  upon  the  way  they  are  analyzed,  correlated  and 
studied;  and  upon  the  degree  of  accounting  intelligence 
used  in  such  analysis,  correlation  or  study. 

Under  the  preliminary  discussion  of  cost  accounting,  one 
of  the  purposes  of  a  cost  system  was  given  as  the  forming 
of  a  basis  of  constructive  criticism.  This  is  undoubtedly 
one  of  the  greatest  benefits  to  be  derived  from  the  keeping 
of  cost  records.  It  takes  time  and  patience  to  keep  cost 
records.  Unless  some  intelligent  use  is  made  of  the  records 
and  accounts,  the  time  might  be  considered  as  wasted.  If 
the  accounts  and  records  are  studied  carefully,  the  time 
used  in  keeping  them  is  very  profitably  spent.  One  can 
usually  find  a  means  of  reducing  expenses  or  increasing 
production  in  one  way  or  another  if  he  studies  his  cost 
accounts  carefully. 

The  benefits  of  a  proper  study  and  interpretation  of 
farm  records  is  very  nicely  summarized  by  Mr.  E.  L.  Cur- 
rier, Assistant  in  Farm  Management,  Montana  Agricul- 

335 


886  FARM  ACCOUNTING 

tural  College,  when  he  states  in  Circular  43  of  the  College 
Experiment  Station  that: 

"A  careful  study  should  be  made  of  each  account  ana 
of  the  business  as  a  whole  in  order  to  learn  how  to  improve 
it     Farm  accounts,  as  stated  before,  are  of  little  value  un- 
less they  teach  how  to  organize  the  business  so  that  greater 
profit  will  result.    The  outcome  of  a  year's  record-keeping 
often  furnishes  many  surprises.     Frequently  some  enter- 
prise that  was  looked  upon  as  a  mainstay  of  the  business 
returns  a  loss,  while  some  more  common  enterprise  to  which 
less  attention  was  given  is  the  source  of  the  real  profit. 
Caution,  of  course,  must  be  exercised  in  interpreting  re- 
sults    It  must  be  borne  in  mind  that  the  figures  are  for 
one  year  only,  and  that  weather,  crop,  and  market  condi- 
tions may  not  all  have  been  normal.    The-  normal  cost  and 
the  normal  value  of  the  product  must  be  kept  foremost  in 
mind   and  if  the  average  market  price  for  a  number  ot 
years'  is  not  above  the  normal  cost  of  production  the  en- 
terprise should  be  discontinued. 

"Besides  the  satisfaction  in  knowing  the  cost  and  prolit 
from  each  enterprise,  the  records  are  valuable  in  other 
ways  They  may  be  used  to  study  the  seasonable  distri- 
bution of  labor  as  a  whole  and  on  separate  enterprises. 

"By  keeping  such  records  one  is  sure  to  gain  a  better 
idea  of  the  value  of  labor.  He  sees  that  it  is  just  as  im- 
portant to  save  an  hour's  work  by  man  and  team  on  an 
acre  of  oats  as  it  is  to  get  a  yield  of  an  extra  bushel  per 
acre,  and  that  it  is  more  wasteful  to  have  a  team  idle  than 
to  hkve  a  man  idle  for  the  same  length  of  time/' 

Labor  Incomes  of  Landlord  Operators.— A  Farm-Man- 
agement Survey  of  three  representative  areas  in  Indiana, 
Illinois  and  Iowa  >  has  brought  out  some  very  interesting 
facts  concerning  the  labor  income  of  landlords  and  tenants. 
The  survey  includes  data  from  about  700  farms,  some  be- 
>BuUetin  41  of  the  U.  S.  Dept.  of  Agriculture. 


INTERPRETATION  OF  COST  ACCOUNTS     337 

ILLUSTRATION  58 

Table  III— Variation  in  Labob  Incomes  on  273  Farms  Operated 
BY  Owners  in  Indiana,  Ilunois,  and  Iowa 


Percent- 

Percent- 

Labor  Income 
Received 

No.  of 
Farms 

age  of 

Total 

Number 

Labor  Income  Received 

No.  of 
Farms 

age  of 

TotAl 

Number 

-S500  and  more 

26 

9.9 

$801  to  $1,000.... 

13 

4.7 

-$499  to -$200 

23 

8.4 

$1,001  to  $1,500.. 

19 

6.9 

-$199 to  $0.... 

40 

14.7 

$1,501  to  $2,000.  . 

10 

3.6 

$1  to  $200 

53 

19.4 

$2,001  to  $3,000.. 

5 

1.8 

$201  to  $400.... 

34 

12.4 

$3,001  to  $5,000.  . 

3 

1.1 

$401  to  $600.... 

23 

8.4 

$5,000  and  over... 

4 

1/i 

$601to$800.... 

20 

7.3 

ing  operated  by  the  landlords  themselves  and  some  by  ten- 
ants. The  quotations  from  the  bulletin,  as  stated  below, 
bring  out  the  relation  between  the  labor  income  of  the  land- 
lord operator  and  the  tenant  operator;  also  the  relation 
between  the  amount  of  the  total  income  of  the  rented  farm 
that  goes  to  the  tenant  and  to  the  landlord. 

**The  assertion  that  farmers  are  making  large  profits  is 
erroneous.  They  are  living  on  the  earnings  of  their  in- 
vestment and  not  on  the  real  profits  of  the  farm.  A  farmer 
having  an  investment  of  $20,000,  with  no  mortgage,  may 
receive  a  minus  labor  income,  yet  have  nearly  $1000  as  in- 
terest on  which  to  live.  It  is  assumed  in  this  discussion 
that  capital  should  return  5  per  cent  before  allowing  the 
farmer  anything  for  his  labor. 

"In  Table  III  (Illustration  58)^  the  farms  are  divided 
according  to  the  labor  income  received.  Each  group  gives 
the  number  of  men  who  made  labor  incomes  ranging  from 
minus  $500  and  more  to  over  $5000. 

» The  Illustration  numbers  are  inserted  by  the  author  and  are  not 
quoted  from  the  bulletin. 


338 


FARM  ACCOUNTING 


**One  fanner  out  of  every  22  received  a  labor  income  of 
over  $2000  a  year.  One  farmer  out  of  every  three  paid 
for  the  privilege  of  working  his  farm,  that  is,  after  deduct- 
ing 5  per  cent  interest  on  his  investment  he  failed  to  make 

a  plus  labor  income/' 

Incomes  Received  by  Farm  Tenants.— *' There  are  few 
regions  in  the  United  States  where  tenant  farming  has  been 
developed  so  extensively  and  where  it  plays  such  an  im- 
portant part  in  agricultural  production  as  in  the  corn  belt. 
The  percentage  of  farms  worked  by  tenants  is  second  only 
to  those  operated  by  owners,  and  the  areas  farmed  and  the 
products  grown  compare  very  favorably  with  those  of  the 

farm  owners. 

**In  the  region  covered  by  this  survey,  records  were  se- 
cured from  247  tenant  farmers.  These  men  rented  one 
farm,  or  land  owned  by  one  person.  There  were  51  other 
tenants  who  rented  farms  from  two  different  parties.  Their 
records  show  the  same  results,  which  have  not  been  included 
in  Table  IV  (Illustration  59). 

**Most  tenants  hope  to  become  farm  owners  as  soon  as 
they  have  sufficient  capital.  The  income  they  receive 
while  leasing  a  farm  is  a  measure  of  the  period  they 
will  have  to  work  before  making  the  change.  The  average 
tenant  in  Indiana,  with  an  investment  of  $1758,  received 
$755  for  his  year's  work.  In  Illinois,  with  an  investment 
of  $2867,  he  received  $1139  as  a  labor  income.  In  Iowa, 
with  an  average  capital  of  $2667,  his  labor  income  was 
$716.  Owing  to  drought  in  early  summer,  the  income  of 
the  tenant  in  Iowa  was  probably  20  per  cent  less  than  it 
would  have  been  in  a  normal  crop  year. 

**The  247  tenant  farmers  make  an  average  labor  income 
of  $870  from  an  investment  of  less  than  $2500.  When  it 
is  remembered  that  the  farm  owners  with  over  12  times 
this  investment  made  less  than  half  the  labor  income  of 


INTERPRETATION  OF  COST  ACCOUNTS     339 

ILLUSTRATION  59 

Table     IV— Average     Capital,    Receipts,    Expenses,    and 

Profits   op   Tenants   on   247    Farms   Operated   by 

Tenants    in    Indiana,    Illinois,    and    Iowa 


Items 


Average  area  (acres) 

Average  capital 

Average  receipts 

Average  expenses 

Average  farm  income 

Average  interest  at  5  per  cent . . 
Average  tenant's  labor  income . 


Indiana 

(83 
Farms) 


128 


$1,758 

1,335 

492 

843 

88 

755 


Illinois 

(71 
Farms) 


202 


$2,867 
2,257 

975 
1,282 

143 
1,139 


Iowa 

(93 

Farms) 


187 


$2,667 
1,605 
755 
850 
134 
716 


Average 

(247 
Farms) 


172 


$2,431 
1,732 
740 
992 
122 
870 


the  tenants,  the  evidence  is  unmistakable  that  the  man 
with  small  capital  should  rent  rather  than  buy  a  farm. 

**For  the  amount  invested,  the  tenant's  income  is  very 
much  greater  than  that  of  the  farm  owner.  The  sum  avail- 
able for  the  family  living,  however,  is  smaller  in  the  case 
of  the  tenant,  for  the  farm  owner,  with  an  average  capital 
of  $30,606  (see  Table  II),  has  $1530  interest  to  use,  as 
well  as  the  $408  labor  income.  Thus,  if  the  farm  owner 
is  free  of  debt,  as  one-half  of  them  are,  he  has  $1938  avail- 
able for  a  living,  as  compared  with  the  tenant's  $992. 

* '  In  addition  to  this  sum  available  for  a  living,  each  has 
what  the  farm  furnishes  in  the  shape  of  produce.  After 
the  tenant  pays  his  living  and  personal  expenses  out  of 
this  amount  his  savings  can  not  be  large.  If  we  allow  the 
owners  3.5  per  cent  on  their  investment  instead  of  5  per 
cent  they  would  then  receive  approximately  the  same  labor 
income  as  the  tenants  ($870).  This  percentage  is  the  same 
as  that  received  by  the  landlords  from  the  rented  farms. 


I 


( 


340 


FARM  ACCOUNTING 
ILLUSTRATION  60 


Table  V— Average  Capital,  Receipts,  Expenses,  and  Profits 

OF  Landlords  for  247  Farms  Operated  by  Tenants, 

AS  Shown  in  Table  IV 


Item 

Indiana 

(83 
Farms) 

Illinois 

(71 
Farms) 

Iowa 

(93 

Farms) 

Average 

(247 
Farms) 

Average  axea  (acres) 

128 

202 

187 

172 

AvpracTp  canital 

$18,423 

1,002 

351 

651 

$36,479 

1,538 

213 

1,325 

$20,728 

1,014 

354 

660 

$25,210 

Avpraffp  rftceiDts     

1,185 

Avpracft  ftXDenses 

306 

Average  f ann  income 

879 

Average   profit    on    invest- 
TTiPTit.^  fner  cent)    

3.53 

3.64 

3.19 

3.5 

Obtained  by  dividing  the  farm  income  by  the  average  capital. 

Taking  into  consideration  the  results  from  all  the  farms 
managed  by  owners  and  by  tenants,  they  show  that  a  re- 
turn can  be  expected  of  3.5  per  cent  on  the  investment  and 
a  labor  income  of  $870. 

Incomes  Received  by  Absentee  Landlords.—* '  The  farm, 
in  the  case  of  the  landlord,  is  a  business  investment.  He 
furnishes  the  capital,  largely  in  the  form  of  land,  and  the 
tenant  furnishes  the  necessary  labor  and  other  means  for 
its  operation.  The  average  investment  of  the  247  land- 
lords for  the  three  States  studied  was  $25,210.  The  aver- 
age net  income  on  the  capital  invested  was  3.5  per  cent. 
All  items  of  expense,  including  repairs,  seeds,  taxes,  and 
insurance,  were  deducted  before  figuring  the  net  returns. 
Table  V  (Illustration  60)  gives  the  average  capital,  re- 
ceipts, expenses,  and  returns  for  the  landlords  in  each 
State. 


INTERPRETATION  OF  COST  ACCOUNTS     341 


**The  average  return  on  investment  from  the  farms  in 
Illinois  was  3.6  per  cent,  in  Iowa  3.2  per  cent,  and  in  Indi- 
ana 3.5  per  cent.  The  income  is  a  moderate  return  on 
the  large  capital,  considering  the  enormous  rise  in  land 
values  during  the  past  10  years.  In  computing  this  in- 
come no  credit  has  been  allowed  for  the  rise  in  value  of  real 
estate,  except  in  case  of  actual  improvements. 

*' There  has  been  a  marked  tendency  throughout  the  en- 
tire country  to  consider  the  farm  more  and  more  as  a  busi- 
ness proposition.  The  landlord  who  is  receiving  3.5  per 
cent  net  from  his  farm,  with  the  bare  land  figured  at  $150 
or  more  an  acre,  has  a  good,  safe  investment.  It  would 
seem  from  the  results  that  if  the  year  studied  was  a  normal 
one,  land  in  the  corn  belt  is  not  overvalued.  Changes  in 
the  price  of  the  staple  products,  such  as  corn  or  oats,  or 
material  changes  in  the  cost  of  production  of  these  crops 
would  be  reflected  in  the  price  of  farm  land.  Unless  the 
price  of  com  becomes  much  higher  for  the  next  period  of 
years,  a  pronounced  increase  in  the  value  of  land  in  this 
region  can  not  be  expected. 

"The  advisability  of  buying  a  farm  as  an  investment 
with  the  intention  of  not  living  on  it  is  often  a  perplexing 

question. 

Variation  in  the  Profits  of  Absentee  Landlords.— **  Table 
VI  (Illustration  61)  gives  the  variation  in  the  landlords* 
returns  in  the  three  States  studied. 

**Out  of  247  men  6  received  less  than  1  per  cent  on  their 
investments.  The  same  number  received  between  7  and 
8  per  cent ;  none  received  over  8  per  cent.  It  is  clear  that 
no  phenomenal  returns  can  be  expected  from  capital  put 
in  farm  land  in  those  States  at  the  present  time.  It  is  be- 
lieved that  the  data  in  Table  VI  (Illustration  61)  are  a 
very  good  indication  of  the  returns  one  may  expect  from 
a  farm  investment  in  those  districts.  The  chances  of  mak- 
more  than  5  per  cent  are  about  1  in  10.'' 


^ 


i1 


mg 


342 


III 


m 


FARM  ACCOUNTING 


ILLUSTRATION  61 


Table  VI — ^Variation  in  Profits  of  Landlords  on  247  Tenant 
Farms  in  Indiana,  Illinois,  and  Iowa 


Landlord's  Profit  on 
Investment  (Per  cent) 

No.  of 
Land- 
lords 

Percent- 
age of 
Total 

Number 

Landlord's  Profit  on 
Investment  (Per  cent) 

No.  of 
Land- 
lords 

Percent- 
age of 
Total 

Number 

Less  than  1 

6 
20 
75 

78 

2.4 

8.1 

30.4 

31.6 

4  1  to5 

42 
13 

7 
6 

17.0 

1  1  to2 

5 . 1  to  6 

5.3 

2  1  to3 

6.1  to  7 

2.8 

3  1  to  4 

7 . 1  to  8 

2.4 

The  figures  presented  in  the  quotations  above  indicate 
that  accounts  may  be  used  for  finding  aggregate  results 
of  labor  income.  Labor  income,  however,  differ^  with  the 
methods  of  accounting.  In  Illustrations  58  and  59  the 
amounts  showing  labor  income  are  greater  by  $600  than 
they  would  be  if  the  operator's  labor  were  charged  as  an 
expense  before  finding  the  farm  income.  In  Illustration 
59,  for  example,  the  average  expenses  would  have  been 
$1092,  $1575,  $1355  and  $1340  respectively;  and  the  aver- 
age tenant's  labor  income  $155,  $539,  $116  and  $270  re- 
spectively had  $600  been  charged  in  the  accounts  for  oper- 
ator's labor  before  finding  the  average  farm  income.  In 
this  case,  however,  the  $155,  $539,  $116  and  $270  would  not 
be  labor  income,  but  would  be  known  as  wages  of  man- 
agement. The  $600  is  the  amount  charged  to  the  various 
farm  elements  because  of  the  operator's  physical  labor  for 
the  year.  The  $155  is  the  amount  of  income  for  the  year, 
representing  the  part  of  the  total  income  due  the  operator 
for  his  risk  and  ability  in  managing  the  farm  for  the  year. 

Meaning  of  Cost. — One  of  the  main  functions  of  keeping 
accounts  on  a  farm  should  be  to  show  the  cost  of  producing 
the  various  productive  elements.     It  is  essential  that  the 


INTERPRETATION  OF  COST  ACCOUNTS     343 

accounts  kept  should  not  be  misinterpreted  with  respect 
to  the  cost  of  production  and  operation. 

"When  one  is  asked  by  his  neighbor,  **What  did  it  cost 
you  last  year  to  raise  a  bushel  of  com?"  he  naturally 
quotes  a  figure  obtained  from  his  Com  account  as  de- 
scribed under  *' Operation  of  Crop  Account,"  Chapter 
IX.  If  both  men  in  question  have  kept  accounts,  a  dis- 
cussion and  a  general  comparison  of  costs  is  likely  to 
arise.  Before  they  start  such  a  comparison,  the  first  step 
should  be  to  make  sure  that  both  have  the  same  thing  in 
mind  when  speaking  of  '*cost."  Unless  such  an  under- 
standing is  reached  first,  one  man  might  have  in  mind 
all  the  charges  to  the  Com  account,  while  another  might 
have  in  mind  only  the  cost  up  to  the  time  of  harvest.  It 
has  been  pointed  out  that  the  cost  of  production  is  found 
in  the  field  account  and  transferred  to  the  crop  account 
as  a  single  item.  The  cost  of  handling,  storing  and  selling 
is  shown  in  the  crop  account  only.  The  aggregate  cost 
up  to  the  time  the  crop  is  sold  or  fed  is  called  the  **  Total 
Cost."  The  production  cost  and  the  total  cost  per  bushel 
are  both  figured  on  the  number  of  bushels  harvested. 

In  order  to  compare  costs  intelligently,  care  should  be 
taken  that  the  total  cost  of  any  productive  element  does  not 
include  extraordinary  losses  due  to  fire,  runways,  disease 
and  similar  causes.  For  example,  under  ordinary  condi- 
tions, the  various  elements  might  be  charged  with,  horse 
labor  on  a  basis  of  the  net  expense  and  loss  in  connection 
with  horses.  If  such  expense  and  loss  consists  of,  say,  $500 
for  loss  of  horses  due  to  disease,  this  $500  should  be  trans- 
ferred directly  to  Loss  and  Gain  account  as  an  extraordi- 
nary loss.  ^  In  this  way,  the  crop  accounts  would  not  be 
called  upon  to  assume  this  loss  in  the  form  of  increased 
cost  of  production  or  selling.    A  loss  of  this  nature  is  a 

*See  Death  of  Livestock  and  Illustration  32,  Chapter  VII. 


I 


( 


!i> 


FARM  ACCOUNTING 

plain  reduction  of  capital  for  which  the  crops  are  not 

responsible. 

Extraordinary  losses  in  crops  due  to  flood,  frost  or  gen- 
eral weather  conditions  are  losses  that  do  not  have  a  very 
great  effect  upon  the  aggregate  cost  of  production.  They 
do  have  an  effect  upon  the  cost  per  bushel  or  ton,  because 
of  the  reduction  in  the  size  of  the  crop  harvested.  Weather 
conditions,  however,  might  cause  an  increase  in  the  ag- 
gregate cost  of  the  crop  when  they  necessitate  replanting, 
or  when  poor  roads  increase  the  cost  of  marketing.  On  the 
other  hand,  such  conditions  might  cause  a  reduction  in  the 
cost  of  the  crop  if  continued  rains  prevent  proper  culti- 
vation. 

For  all  practical  jmrposes,  then,  the  aggregate  produc^ 
Hon  cost  and  total  cost  are  not  affected  by  weather  condi- 
tions, while  the  unit  costs  are  so  affected. 

Meaning  of  Profit.— As  in  the  case  of  the  term  ''cost*' 
there  is  also  a  great  opportunity  for  variations  in  the  mean- 
ing of  the  word  ''profit."  When  a  man  says  that  he  has 
made  a  profit  of  $1200  on  hogs  during  a  given  year,  what 
does  he  mean  ?  When  he  says  he  has  made  a  profit  of  $400 
on  alfalfa,  what  does  he  mean  ?  Unfortunately  it  is  usually 
impossible  to  say  just  what  he  means  without  first  finding 
out  what  elements  of  expense  and  income  he  considered 
before  deriving  the  figure  which  he  calls  "profit."  It  is 
to  be  hoped  that  as  the  science  of  farm  accounting  devel- 
ops, there  will  be  a  more  common  understanding  of  the 
use  of  the  fundamental  terms. 

The  meaning  of  the  word  "profit"  depends  upon  several 

conditions. 

1.  The  system  of  accounting  used,  i.e.,  whether  a  general 

or  cost  system. 

2.  The  values  used  in  calculating  labor,  horse  labor,  feed 

consumed  and  depreciation. 

3.  The  consideration  of  the  operator's  wages,  say  $600, 


INTERPRETATION  OF  COST  ACCOUNTS     345 

and  of  interest  as  elements  of  cost;  and  the  rate  of  interest 
used  when  it  is  considered. 

In  the  comparison  of  the  accounts  of  L.  E.  Fay  as  kept 
under  the  general  and  cost  systems  (Illustrative  Problem 
2,  Chapters  VIII  and  IX)  it  was  found  that  a  considerable 
difference  in  profits  on  the  several  productive  elements 
existed  under  the  two  systems,  although  the  net  profit 
on  the  whole  farm  was  the  same.  Under  the  general  sys- 
tem, a  given  crop  showed  a  greater  profit  than  under  the 
cost  system  if  all  of  it  was  sold  in  the  market.  It  showed 
less  profit  under  the  general  system  if  fed  to  livestock. 
These  differences  arose  because  the  cost  system  recorded 
charges  for  labor,  horse  labor,  equipment  use  and  other 
costs  that  were  not  recorded  under  the  general  system. 
Also,  the  cost  system  recorded  credits  for  the  value  of 
quantities  fed  to  livestock,  while  the  general  system  did 
not. 

Similarly,  swine  showed  greater  profit  under  the  gen- 
eral system  than  under  the  cost  system,  due  largely  to  the 
fact  that  a  large  part  of  the  expense  for  labor  and  feed 
was  not  charged  to  the  hogs  under  the  general  system. 

The  second  condition  named  as  affecting  the  meaning  of 
profit  is  value  of  labor,  horse  labor,  feed  and  depreciation. 
The  figures  to  use  in  calculating  these  elements  of  cost  have 
been  discussed  under  their  respective  titles.  A  further 
presentation  is  given  in  the  Appendix.  Anything  that  will 
tend  to  standardize  the  values  charged  for  these  costs  will 
assist  materially  in  affording  a  valuable  comparison  of 
results  among  farmers. 

The  effect  of  the  operator's  wages  on  the  profit  of  a 
farm  was  stated  above  in  connection  with  the  labor  income 
explanations. 

The  consideration  of  interest  as  an  element  of  cost  and 
the  rate  of  interest  used  have  a  considerable  bearing  upon 
the  profit  of  any  productive  element,  but  no  effect  upon 


I* 


i 


m 


346  FARM  ACCOUNTING 

the  aggregate  profit  of  the  individual  as  shown  in  the  Loss 
and  Gain  account.'  In  any  particular  crop  account,  an 
absence  of  a  charge  for  interest  on  investment  will  result 
in  less  cost  and,  therefore,  greater  profit  than  when  interest 
is  included  as  an  element  of  cost 

In  brief,  it  can  be  said,  then,  that  a  comparison  of  costs 
or  profits  is  of  little  or  no  value  unless  the  costs  or  profits 
to  le  compared  are  determined  under  the  same  general 
principUs.  Great  care  must  be  exercised  %n  framing  pol- 
icies based  on  a  "cost"  or  a  "profit"  quoted  by  someone 

Reading  a  Loss  and  Gain  Accotmt.— Before  attempting 
to  analyze  the  several  productive  accounts  one  should  un- 
derstand first  how  to  analyze  the  Loss  and  Gain  account. 
He  should  learn  to  know  just  what  the  Loss  and  Gain  ac- 
count tells  about  his  business,  his  income  from  investment, 
income  as  a  manager,  income  as  a  laborer  and  income  as 
a  farmer  and  an  individual. 

It  has  been  pointed  out  previously'  how  to  find  the 
profit  as  an  individual  and  as  a  farmer,  by  considering  the 
balance  of  the  Loss  and  Gain  account  in  connection  with 
the  loss  or  gain  transferred  from  the  Household  account. 

Considering  the  Loss  and  Gain  account  of  Illustration 
62  one  should  read  the  results  in  some  such  way  as  this: 

Income  as  an  individual:  The  $1400  is  the  income  as  an 
individual  since  all  of  the  operations  of  the  farm  and 
household  are  considered  in  deriving  the  amount. 

Income  as  a  farmer:  $1295  is  the  income  as  a  farmer 
shown  by  the  Loss  and  Gain  account  in  Illustration  62 
The  amount  is  found  by  adding  together  the  net  gain  of 
each  of  the  productive  elements  of  the  farm,  oats,  com, 
potatoes,  swine  and  cattle.  Interest  on  Investment  is  not 
an  income  of  the  farmer  but  of  the  individual.    Interest 

^Illustrations  54  and  55. 
»  Pages  195-197. 


INTERPRETATION  OF  COST  ACCOUNTS     347 


ILLUSTRATION  62 
Typical  Loss  and  Gain  Account  to  be  Read  ob  Analyzed 


Loss  and  Gain 


Household $200 

Net  Gain  to  Capital  Ac- 
count     1,400 


$1,600 


Oats $250 

Corn 400 

Potatoes 375 

Swine 60 

Cattle 210 

Interest  on  Investment  305 


$1,600 


is  charged  to  the  fanning  operations  by  the  man  as  a  pri- 
vate individual.  Accordingly  the  income  as  a  farmer, 
$1295,  is  derived  after  the  various  productive  elements 
operated  by  the  farmer  have  been  charged  with  interest 
on  investment.^  Another  way  of  deriving  the  same  result 
is  to  add  the  $1400  net  gain  to  the  $200  Household  expense 
and  deduct  $305  interest. 

Income  as  a  laborer:  Under  the  method  of  cost  account- 
ing advocated  in  the  preceding  pages,  every  Loss  and  Gain 
account  provides  $600  for  the  labor  of  the  operator.  This 
is  taken  care  of  by  the  debit  to  Labor  account,  and  credit 
to  Household.  The  $600  is  not  shown  as  a  separate  item 
but  is  absorbed  in  the  various  productive  accounts.  Ac- 
cordingly in  reading  any  Loss  and  Gain  account  after  such 

*  Considering  interest  on  investment  in  this  way  places  the  ' '  profit 
as  a  farmer ' '  of  the  landlord  operator  on  a  basis  comparable  with  the 
*  *  profit  as  a  farmer ' '  of  the  tenant  farmer.  In  either  case,  the  profit 
as  a  farmer  is  the  sum  of  the  profits  from  each  of  the  productive 
elements.  Each  productive  element  in  turn  has  been  charged  with 
rent  or  its  equivalent  in  interest,  depreciation,  repairs  and  so  on. 


li 


; 


348 


FARM  ACCOUNTING 


an  entry  has  been  made,  one  may  know  that  the  account 
provides  for  $600  for  the  labor  of  the  operator  whether  he 
be  a  tenant  or  owner. 

Income  from  Investment:  The  income  from  the  invest- 
ment in  farm  property  is  very  easily  determined  from 
such  a  Loss  and  Gain  account.  The  $305  is  the  interest  on 
the  investment  in  equipment  and  livestock,  assuming  that 
the  operator  in  question  is  a  tenant.  If  he  is  a  landlord, 
it  would  include  interest  on  land  and  buildings  also. 

Income  as  a  manager:  With  the  $600  labor,  and  the 
proper  amount  of  interest  on  investment  already  charged 
to  the  various  productive  elements  the  compensation  for 
risk  and  management  is  $1295  (1400+200—305).  The  $305 
is  deducted  because  it  is  considered  as  an  income  of  the  in- 
dividual which  is  not  affected  by  the  managing  ability  of 
the  operator,  and  which  does  not  measure  any  risk  since 
it  is  charged  to  the  productive  elements  regardless  of  all 
other  conditions. 

The  $305  interest  in  this  case  and  in  other  similar  cases 
might  be  credited  to  Household  account.  Since  it  is  cred- 
ited to  a  separate  account,  Interest  on  Investment,  it  may 
be  considered  for  analytical  purposes  as  part  of  the  House- 
hold credits. 

Analysis  and  Comparison  of  Results. — Analyzing  ledger 
accounts  and  framing  suitable  comparisons  therefrom  con- 
stitute two  of  the  most  valuable  points  of  assistance  in  the 
interpretation  of  accounting  results.  The  preparation  of 
analytical  and  comparative  tables  involves  a  knowledge  of 
statistical  as  well  as  accounting  methods. 

The  term  *  *  cost  records ' '  is  not  confined  to  the  forms  and 
methods  used  in  collecting  the  information  concerning  the 
inter-related  farm  elements.  It  is  used  also  to  designate 
any  tables  and  analyses  that  might  be  prepared  to  assist 
in  interpreting  the  data  and  the  various  accounts.  Such 
records  are  the  most  important  part  of  a  cost  accounting 


INTERPRETATION  OF  COST  ACCOUNTS     349 

system,  as  they  form  the  basis  for  direct  conclusions  in 
framing  the  policies  of  management. 

An  analysis  is  necessary  to  assist  in  finding  the  causes 
of  things,  because  each  element  of  expense  or  income  can 
be  examined  separately.  It  is  easier,  for  example,  to  ver- 
ify the  reasonableness  of  a  charge  for  labor  on  a  crop  than 
to  take  all  charges  together  in  an  effort  to  determine 
whether  the  total  cost  seems  reasonable. 

A  comparison  of  results  is  highly  desirable  because  of 
the  recognized  truth  in  the  statement,  ''When  there  is  noth- 
ing to  compare,  there  is  nothing  to  criticize. '^  Comparison 
of  results  may  be  of  one  year  with  another ;  one  farm  with 
another;  one  crop  or  field  with  another;  or  one  farm  with 
the  average  of  a  group  of  farms  obtained  by  experiment 
under  similar  conditions  of  soil,  climate  and  topography. 

Using  the  principles  of  accounting  as  presented  in  this 
volume,  the  Ledger  account  is  the  starting  point  for  all  an- 
alyses  and  comparisons  of  results.  Some  of  the  detailed 
features  of  analytical  and  comparative  tables  are  pre- 
sented in  the  several  pages  that  follow. 

Comparative  Analysis  of  Crop  Account.— The  prepara- 
tion of  comparative  figures  showing  detailed  costs  of  pro- 
ducing and  disposing  of  a  crop  this  year,  as  compared  with 
one  or  more  other  years,  is  quite  essential.  Such  figures 
are  obtained  from  the  appropriate  crop  account  and  the 
accounts  with  the  fields  in  which  the  crop  was  produced. 

As  an  example,  presume  that  a  comparative  analysis  of 
Corn  account  is  to  be  prepared  for  1916,  1917  and  1918. 
We  shall  trace  the  figures  for  1917  through  the  three  fields, 
Nos.  5,  6  and  7,  into  the  Corn  account  for  1917  and  thence 
into  the  Comparative  Analysis  of  Corn  account,  as  follows : 
The  three  field  accounts  and  the  Corn  account  appear 
as  in  Illustration  63,  immediately  after  closing  the  books 
for  the  year,  and  before  preparing  the  analysis. 
Using  the  figures  presented  in  the  axjcounts  of  Fields 


\A 


r' 


i,  :l 


f 


i 


350  FARM  ACCOUNTING 

Nos.  5,  6  and  7  and  the  Com  account  as  in  Illustration  63, 
the  Comparative  Analysis  of  Corn  account  appears  as  in 
Illustration  64.  The  fibres  for  the  year  1917,  ending 
Feb.  28,  1918,  are  obtained  from  the  accounts  of  Illustra- 
tion 63.  The  others  for  the  year  ending  Feb.  28,  1917, 
are  shown  only  to  assist  in  discussing  the  analysis.  A 
study  of  the  Comparative  Analysis  is  necessary  in  order 
to  determine  just  how  all  the  1917  figures  are  obtained 
from  the  accounts  of  Illustration  63. 

Preparation  of  the  Comparative  Analysis. — The  first 
item  for  the  year  ended  Feb.  28,  1918,  in  the  comparative 
analysis  of  Illustration  64,  ^*  Fertilizer  $22.50,"  is  obtained 
from  the  field  accounts  of  Illustration  63  in  this  manner: 

Field  No.  5  Dr.  On  hand  at  start $36 .00 

Less  Cr.  On  hand  at  close 27.00      $9.00 

Field  No.  6  Dr.  On  hand  at  start $8.00 

Dr.  AppUed  in  Year 22.00 

$30.00 
Less  Cr.  On  hand  at  close 19.60      10.40 

Field  No.  7  Dr.  On  hand  at  start $2.00 

Dr.  Applied  in  year 6.20 

$8.20 
Less  Cr.  On  hand  at  close 5.10       3.10 

Total  fertilizer  consumed  by  crop  of  1917. .  $22.50 

The  cost  of  seed  is  obtained  by  the  mere  process  of  add- 
ing the  three  items  as  shown  in  the  field  accounts  of  Illus- 
tration 63,  thus: 

Field  No.  5 $5.10 

Field  No.  6 5.25 

Field  No.  7 1.40 

Total  seed  used  in  1917  com  crop. .    $11 .75 


ILLUSTRATION  63 
Field  and  Corn  Accounts  Closed  and  Ready  fob  Analysis 

Field  No.  5 
(Year  1917)  25  Acres 


1917 

Apr.    1  Fertilizer $36.00 

May    iSeed 5.10 

1918 

Feb.  28  Labor  for  year. .  51.  yO 
Feb.  28  Horse  Labor  yr.  65.86 
Feb.  28  Int.  on  Invest . .  175 .  00 
Feb.  28Equip'tExp...     10.00 

$343.86 


1917 

Nov.  301109H  bu.  to 
corn  a/c  at 
25. 7  cents... $285. 56 

1918 

Feb.  28  Labor  Invty...     14.00 
Feb.  28  Horse  Labor  In- 
ventory      17.30 

Feb.  28 FertiUzer 27.00 

$343 . 86 


1918 

Mar.    1  Labor  Invty...  $14.00 
Mar.    1  Horse  Labor  In- 
ventory      17.30 

Mar.   1  Fertilizer 27.00 

Field  No.  6 
(Year  1917)  25}/^  Acres 


1917 

Mar.    1  Labor  Invty ...  $10 .  00 
Mar.    1  Horse  Labor  In- 
ventory      11.20 

Mar.  1  Fertilizer  Invty.  8.00 
Apr.    1  Fertilizer  applied    22.00 

May    2  Seed 5.25 

1918 

Feb.  28  Labor  for  year..  48.60 
Feb.  28  Horse  Labor  yr .  62 .  10 
Feb.  28  Int.  on  Invest..  178.50 
Feb.  28  Equip't  Exp . . .      9.80 

$355.45 

1918 

Mar.    1  Labor  Invty. . .  $13.00 
Mar.    1  Horse  Labor  In- 
ventory       16 .00 

Mar.    1  Fertilizer  Invty.    19.60 


1917 

Nov.  30  1216  bu.  to  com 

a/c  at  25. 2c.. $306. 85 


1918 

Feb.  28  Labor  Invty...    13.00 
Feb.  28  Horse  Labor  In- 
ventory      16.00 

Feb.  28 Fertilizer 19.60 

$355.45 


|| 


351 


'l1 


ILLUSTRATION  63— Continued 

Fidd  No.  7 

(Year  1917)  6^  Acres 


1917 
Mar. 
Mar. 

Mar. 
Apr. 
May 
1918 
Feb. 
Feb. 


1  Labor  Invty.. 
1  Horse    Labor 

ventory 

1  Fertilizer  Invty. 
1  Fertilizer  appld . 
4Seed 


In- 


28  Labor  for  year. 
28  Horse    Labor 


for 


Feb.  28  Int.     on     Invest. 
Feb.  28  Equipt.  Exp.  yr. . 


$3.00 

3.00 
2.00 
6.20 
1.40 

13.10 

16.30 

45.50 
2.30 

$92.80 


1917 

Nov.  30  300  bu.  to  com 
a/c  for  silage 
@27.3ct 


$81.80 


/ 

1918 

Feb.  28  Labor  Invty 2.80 

Feb.  28  Horse    Labor    In- 
ventory      3.10 

Feb.  28  Fertilizer  Invty ...     6 .  10 


1918 
Mar. 
Mar. 

Mar. 


1  Labor  Invty $2.80 

1  Horse    LatJor   In- 
ventory      3 .  10 

1  Fertilizer  Invty. . .    5 .  10 


$92.80 


Com  (Year  1917) 


1917 
Mar.    1 
Nov.  30 

Nov.  30 

Nov.  30 

1918 
Feb.  28 
Feb.  28 
Feb.  28 
Feb.  28 
Feb.  28 
Feb.  28 


Invty.  (1640bu.)$656.00 
From  Field  No.  5 

(11093^  bu.)....  285.56 
From  Field  No.  6 

(1216  bu.) 306.85 

From  Field  No.  7 

(300  bu.) 81.80 

Labor  for  year. . .  83 . 20 

Horse  Labor  yr. .  94 . 90 

Equipt.  Exp 14.70 

Building  Exp....  20.80 

General  Exp 40.50 

To  Loss  &  Gain 

a/e,  Net  Gain  for 

year 2,708.91 

$4,293.22 


1918 

Mar.    1  Invty  1030^  bu. 

@  35  cents $360.67 


1918 

Feb.  28  Fed  during  yr. 
per  feed  sum- 
mary 1250  bu. 
@$1.20 $1,500.00 

Feb.  28  Sold  1685  bu.  @ 

$1.23 2,072.55 

Feb.  28  Silage  300  bu.@ 

$1.20 360.00 

Feb.  28  Invty.      1030H    » 

bu,@  35  cents.     360.67 


$4,293.22 


352 


ILLUSTRATION  64 

Comparative  Analysis  of  Corn  Account,  for 

Years  1916,  1917  and  1918 


€ott  of  Production 

Fertilixer ■ 

Seed 

Labor 

Horse  Labor 

Rent  or  interest  on  land 

Equipment  expense 

(1)  Cost  of  Production  for  the  year 

(2)  Cost  of  Production  for  the  year,  per  acre 

(3)  Cost  of  Production  for  the  year,  per  bu . 
Coat  of  Haneating  and  Hounng 

Labor 

Horse  Labor 

Equipment  Expense 

Building  Expense 

General  Expense 

(4)  Cost  of  Harvesting  and  Housing  for  the 

year 

(5)  Cost  of  Harvesting  and  Housing  for  the 

year,  per  acre 

(6)  Cost  of  Harvesting  and  Housing  for  the 

year,  per  bushel 

(7)  Total  cost  of  Com  for  the  year,  per  acre 

(8)  Total  cost  of  Com  for  the  year,  per  bu 

(9)  Total  cost  of  year's  crop  of  Com 

(10)  Inventory  at  beginning  of  year 

(11)  Cost  of  all  com  available  for  sale  or  use 

during  the  year 

(12)  Deduct:  Inventory  at  close  of  year .. . 

(13)  Total  cost  of  com  sold  and  used  during  year 


Income 

Corn  sold 

Com  fed 

Com  used  in  silage 

(14)  Total  income  from  com,  for  the  year . 

Summary 

(15)  Total  income  from  com « 

(16)  Loss  total  cost  of  com 

(17)  Net  Gain  on  com  for  the'year ■ 

(18)  Net  Gain  per  Acre  planted 


353 


For  Year  Ended 


Feb.  28 
1917 


$18.00 
10.80 
102.20 
131.15 
350.00 
25.00 


$637.15 


$12.74 
.254 


$80.25 
90.40 
14.00 
21.00 
50.70 


$256.35 


$5.13 

.102 
17.87 
.356 


$893.50 
413.80 


$1,307.30 
$656.00 


$651.30 


$975.00 
195.00 


$1,170.00 


$1,170.00 
651.30 


$518.70 


$10.37 


Feb.  28 
1918 


$22.50 

11.75 

96.80 

122.06 

399.00 

22.10 


$674.21 


$11.83 
.257 


$83.20 
94.90 
14.70 
20.80 
40.50 


$254.10 


$4.46 

.097 
16.29 
.354 


$928.31 
656.00 


$1,584.31 
360.67 


$1,223.64 


$2,072.55 

1,500.00 

360.00 


$3,932.55 


$3,932.55 
1,223.64 


$2,708.91 


$47.52 


Feb.  28 
1919 


360.67 


'illl 


S54  FARM  ACCOUNTING 

The  cost  of  labor  in  production,  $96.80  as  in  Illustration 
64,  is  obtained  from  the  field  accounts  in  this  way : 

Field  No.  5  Dr.  Labor  applied $51.90 

Less  Or.  Next  year's  part 14. 00    $37.90 

Field  No.  6  Dr.  From  past  year $10.00 

Dr.  Labor  applied 48.60 

$58.60 
Less  Or.  Next  yearns  part 13.00    $45.60 

Field  No.  7  Dr.  From  past  year $3. 00 

Dr.  Labor  applied 13 .  10 

$16.10 
Less  Cr.  Next  year's  part 2.80    $13.30 

Total  labor  used  in  production  of  1917  com 

crop $96.80 

The  item  **  Horse  Labor  $122.06,''  shown  as  part  of  the 
cost  of  production,  is  obtained  in  the  same  way  as  the  labor 
item  analyzed  in  the  preceding  paragraph. 

That  part  of  the  cost  of  production  called  ' '  Rent  or  in- 
terest on  land,"  $399,  is  obtained  by  adding  together  the 
three  items  found  in  the  three  field  accounts,  called  * '  Inter- 
est on  Investment. ' '  Similarly,  equipment  expense  figure, 
$22.10,  is  derived  from  the  sum  of  the  three  items  bearing 
that  title  in  the  field  accounts  of  Illustration  63. 

The  details  of  the  **Cost  of  Harvesting  and  Housing" 
in  Illustration  64  are  obtained  from  the  Corn  account  of 
Illustration  63.  It  is  observed  that  the  items  correspond 
exactly  without  any  further  adjustments.  That  is,  ''Labor 
for  the  year  $83.20,"  as  stated  in  the  Corn  account,  is  the 
same  as  "Labor  $83.20,"  under  ''Cost  of  Harvesting  and 
Housing,"  in  the  Comparative  Analysis. 


^1 


INTERPRETATION  OF  COST  ACCOUNTS     355 

It  should  be  observed  in  studying  Illustration  64  that 
the  result  designated  as  "  (1)/'  cost  of  production  for  the 
year,  $674.21,  is  the  sum  of  the  items  above  it.  Also,  it  is 
important  to  note  that  a  very  essential  verification  of  this 
figure  (1)  may  be  made  from  the  Corn  account,  as  follows: 

From  Field  No.  5  (1,109^  bu.) $285.56 

From  Field  No.  6  (1,216     bu.) 306 .  85 

From  Field  No.  7  (  300     bu.) 81.80 

Cost  of  production  for  the  year $674 .  21 

Result  (4)  in  Illustration  64  takes  the  place  of  five  items 
in  the  Corn  account,  under  date  of  Feb.  28,  1918.  Other 
results  in  the  Comparative  Analysis  of  Illustration  64  not 
reduced  to  a  unit  basis  correspond  to  other  figures  in  the 
Corn  account,  the  net  gain  of  $2708.91  being  the  aggregate 
result  in  both  cases. 

In  an  analysis  of  any  account,  it  is  essential  that  all 
items  in  the  account  he  considered,  and  that  the  result 
obtained  in  the  analysis  he  the  same  as  the  result  in  the 

account. 

In  order  to  bring  out  more  clearly  the  relation  between 
the  Corn  account  of  Illustration  63  and  its  analysis  in 
Illustration  64,  the  correlation  is  presented  in  outline  form 
in  Illustration  65. 

A  study  of  Illustration  65  together  with  Illustrations  63 
and  64  reveals  the  fact  that  the  Comparative  Analysis  of 
Corn  Account  uses  all  of  the  figures  of  the  Corn  account, 
but  merely  presents  them  in  a  different  form  and  with  some 
of  the  amounts  subdivided  to  show  more  of  the  details. 
The  figures  in  parentheses,  in  Illustration  65,  as  (11),  (9), 
(10),  etc.,  refer  to  the  corresponding  numbers  of  items  in 
Illustration  64.  The  amounts  shown  in  Illustration  65  are 
exactly  the  same  as  those  in  Illustration  63,  Corn  account, 
and  are  in  the  same  order. 


i 


MM'* 


W 


1 


FARM  ACCOUNTING 


ILLUSTRATION  65 


A  Correlation  of  the  Corn  Account  and  Its  Analysis 
(Amounts,  Same  as  Corn  Account  Illustration  63) 

Com  (Year  1917) 


-(10)   $656.00 

$1,500.00 

r   285.56 

(14)  j 

2,072.55 

(1) 

306.85 

L   360.00 

L   81.80 

(12)    360.67 

(11)- 

(9). 

(4)- 

83.20 
94.90 
14.70 
20.80 

» 

40.50 

(17) 

$2,708.91 

$4,293.22 

$4,293.22 

Considering  Illustration  64  again  and  the  figures  for  the 
year  ended  Feb.  28,  1918,  the  amounts  bearing  numbers 
to  the  left  are  obtained  as  follows: 

(1)  The  sum  of  the  items  above  it. 

(2)  The  $11.83  per  acre  is  found  by  dividing  674.21  by 
57.  The  latter  figure  is  the  total  acreage  of  Fields  Nos.  5, 
6  and  7,  obtained  from  the  accounts  or  the  farm  plot,  thus: 

Field  No.  5 25     acres 

Field  No.  6 25^  acres 

Field  No.  7 6}^  acres 

57     acres 


(3)  The  25.7  cents  per  bushel  is  obtained  by  dividing 
674.21  by  26251/2-  The  latter  figure  is  the  number  of 
bushels  of  com  harvested  from  the  several  fields  during  the 


INTERPRETATION  OF  COST  ACCOUNTS     357 

year. '  It  includes  the  number  of  bushels  husked,  plus  the 
estimated  number  of  bushels  on  the  stalks  cut  for  other 
purposes  (11091/2  plus  1216  plus  200  =  26251/2). 

(4)  The  sum  of  the  five  items  immediately  above. 

(5)  This  is  the  quotient  of  254.10  divided  by  57,  the  lat- 
ter being  the  number  of  acres  planted  in  corn. 

(6)  This  figure,  9.7  cents  per  bushel,  is  the  quotient  of 
254.10  divided  by  26251/2  [See  (3)]. 

(7)  Obtained  by  addition  of  (2)  and  (5). 

(8)  Obtained  by  addition  of  (3)  and  (6). 

(9)  The  sum  of  (1)  and  (4). 

(10)  The  inventory  at  the  beginning  of  the  year  is  taken 
from  the  Corn  account,  it  being  the  first  debit  item  there- 
in. It  should  be  noted  that  in  the  column  for  the  year 
ended  Feb.  28,  1919,  the  result  (10)  is  the  same  as  result 
(12)  in  the  year  ended  Feb.  28,  1918.  Likewise,  result 
(10)  in  the  year  ended  Feb.  28,  1918,  is  the  same  as  result 
(12)  in  the  year  ended  Feb.  28,  1917. 

(11)  The  sum  of  (9)  and  (10). 

(12)  The  inventory  at  the  close  of  the  year  is  taken 
from  the  Corn  account,  it  being  the  last  item  on  the  credit 
side,  in  Illustration  63. 

(13)  The  difference  between  (11)  and  (12). 

(14)  This  is  the  sum  of  the  three  items  above,  which 
items  are  obtained  from  the  credit  side  of  the  Corn  ac- 
count. 

(15)  This  is  the  same  as  (14). 

(16)  This  is  the  same  as  (13). 

(17)  The  difference  between  (15)  and  (16). 

(18)  This  net  gain  per  acre  planted  is  the  quotient 
of  2708.91  [result  (17)]  divided  by  57,  the  number  of 
acres  planted. 

A  Study  of  the  Comparative  Analysis. — After  complet- 
ing the  Comparative  Analysis  of  a  given  crop  for  any  year, 
as  presented  in  Illustration  64,  it  is  highly  desirable  for 


Ht 


I     ( 


358 


FARM  ACCOUNTING 


the  farm  operator  to  study  it  carefully.  As  previously 
suggested,  such  study  is  more  likely  to  give  good  results 
if  it  is  made  in  a  comparative  way. 

In  making  the  comparative  study  of  the  figures  for  the 
years  ended  Feb.  28,  1917,  and  Feb.  28,  1918,  it  should  be 
stated  first  that  the  same  fields  were  not  used  for  corn 
in  each  of  the  two  years.  In  the  first  year  the  corn  acre- 
age was  50,  while  in  the  second  year  under  consideration 
it  was  57.  The  number  of  bushels  harvested  in  the  year 
ended  Feb.  28,  1917,  was  2510,  as  compared  with  2625y2 
in  the  year  following. 

As  the  Comparative  Analysis  is  prepared  in  Illustration 
64,  it  is  possible  to  bring  out  two  main  points  between  the 
years  under  consideration :  1.  The  results  of  management. 
2.  The  result  of  market  conditions. 

In  this  connection,  item  (9),  **The  total  Cost  of  year's 
crop  of  corn,*'  is  the  one  which  indicates  whether  the  men, 
horses  and  equipment  have  been  handled  economically  or 
not.  Results  (2),  (5)  and  (7),  Cost  per  Acre,  should  be 
quite  uniform  one  year  with  another,  depending  only 
slightly  upon  weather  conditions,  and  somewhat  upon  the 
sizes  of  the  fields  used.  The  per  bushel  cost  as  calculated 
in  results  (3),  (6)  and  (8)  is  very  likely  to  fluctuate  con- 
siderably. It  is  low  under  favorable  weather  conditions 
and  high  under  unfavorable  conditions. 

However,  good  farm  management  can  have  considerable 
effect  on  the  per  bushel  cost.  Proper  rotation,  fertiliza- 
tion, selection  of  seed  and  similar  elements  can  increase 
the  yield  without  a  corresponding  increase  in  total  cost. 
Such  conditions  would  decrease  the  cost  per  bushel.  Ex- 
cessive applications  of  fertilizer,  however,  would  not  re- 
sult in  a  corresponding  decrease  in  the  production  cost 
per  bushel. 

Good  management  may  be  reflected  in  items  (10)  and 
(12),  inventories.    The  ability  to  analyze  economic  condi- 


INTERPRETATION  OF  COST  ACCOUNTS     S59 

tions  properly  may  cause  the  careful  farmer  to  hold  his 
corn  in  some  years  and  to  sell  early  in  other  years.  It  is 
noticed  that  in  the  year  ended  Feb.  28,  1917,  more  corn 
was  carried  over  than  in  either  of  the  other  two  years 
shown  in  Illustration  64.  This  seems  to  indicate  that  a 
rise  in  price  was  expected  during  the  opening  months  of 
the  next  fiscal  year. 

Result  (13),  cost  of  corn  sold  and  used,  does  not  mean 
much  in  a  comparative  way  until  it  is  used  in  the  Summary 
as  (16)  in  connection  with  the  income  shown  in  result 
(15)  of  the  Summary. 

A  comparison  of  the  income  items  (14)  indicates  the 
policy  of  the  farmer  to  some  extent.  In  one  year  he  does 
not  sell  any,  but  in  the  next  year  he  sells  much.  The  total 
income  as  shown  in  the  Summary  of  Illustration  64,  can 
hardly  be  said  to  reflect  the  ability  of  the  farmer  except 
as  it  is  reflected  through  the  cost  of  production  per  bushel. 
This  is  true  because  all  income  from  com  is  figured  at 
market  price,  and  the  average  farmer  does  not  have  much 
to  do  with  the  fixing  of  the  market  price.  It  should  be 
considered  that  the  two  years  in  the  Illustration  are  years 
of  unusually  high  prices  for  farm  products. 

However,  it  might  be  said  that  total  income  does  reflect 
the  farmer's  ability  in  one  respect.  The  farmer  who  stud- 
ies national  conditions  and  can  foresee  a  high  price  for 
com,  will  put  in  a  greater  acreage  of  com  and  smaller 
acreage  of  some  other  products.  Also,  he  may  be  able  to 
sell  at  the  proper  time. 

Result  (17),  **net  gain  on  corn  for  the  year,''  is  inter- 
esting as  a  starting  point,  if  one  wishes  to  determine  poli- 
cies for  succeeding  years,  or  to  examine  the  causes  of  the 
results  of  the  present  year. 

Result  (18),  **net  gain  per  acre  planted,"  is  a  figure 
that  does  not  reflect  the  ability  of  the  farmer  primarily. 
This  result,  together  with  (17),  is  a  very  good  one  to  study 


( •! 


PI 


:.^li 


<t 


( 


i 


I 

I'. 


360  FARM  ACCOUNTING 

in  comparison  with  other  crops  for  the  same  series  of  years. 
The  Comparative  Analysis  of  a  crop  account,  then   af- 
fords an  opportunity  for  studying  conditions  and  methods 
with  a  view  to  making  a  greater  net  gain  from  tlie  proi^- 
greater  hoth  in  the  aggregate  and  per  acre  planted.    All 
that  has  been  presented  in  discussing  Corn  account  applies 
to  any  other  crop  account.    Similar  Comparative  Analysis 
sheets  could  be  made  for  each  crop.    If  feasible  in  any  ca^e, 
and  especially  when  a  columnar  book  can  be  obtained^  tor 
the  purpose,  it  is  better  to  have  more  than  three  years   re- 
suits  compared.    In  a  good  bound  columnar  book  ten  years 
results  could  be  summarized  by  writing  the  items  of  cost 
and  income  only  once  at  the  left  of  the  page. 

Comparison  of  Several  Crops.— Aside  from  having  an 
analysis  of  each  crop  as  outlined  above,  considerable  bene- 
fit is  to  be  derived  from  an  analysis  of  all  of  the  crops  pro- 
duced in  a  given  year.  In  such  an  analysis,  the  same  out- 
line would  be  used  as  that  presented  in  Illustration  64,  the 
only  change  being  in  the  heading  of  the  money  columns 
Comparative  Analysis  of  Crop  Accounts  is  the  title  ot 
such  a  table.     Illustration  66  presents  the  general  form 

to  be  used.  .  . 

In  the  use  of  an  analysis  like  that  shown  m  Illustration 
66  the  word  " bushel' '  as  used  in  Illustration  64  could  be 
changed  to  read  ^'bushel  or  ton,"  as  occasion  demanded. 
The  figures  for  oats,  wheat  and  other  crops  could  be  ob- 
tained from  an  analysis  of  the  ledger  accounts  or  from  the 
Comparative  Analysis  of  Oats,  Wheat  or  other  account,  if 
such  analysis  was  prepared  first. 

Comparative  Crop  Production  and  Costs.— The  Compar- 
ative Analysis  of  Crop  accounts  as  presented  in  Illustra- 
tions 64  and  66,  represent  only  one  of  several  possible  types 
available  for  arranging  the  results  of  the  ledger  account 
into  a  form  that  may  be  used  as  a  basis  for  constructive 
criticism. 


INTERPRETATION  OF  COST  ACCOUNTS     361 
ILLUSTRATION  66 

COMPABATIVE  ANALYSIS  OF  CrOP  ACCOUNTS  FOR  THE  YeAR 

Ended  Feb.  28,  1918 


Com    Oats    Wheat    Alfalfa 

Cost  of  Production 

Fertilizer c     $22.50 

Seed 11.75 

etc. 
etc. 

as  presented  in  Illustration  64 
etc.  Phrased  as  to  Cost  and  In- 
come as  in  Illustration  64. 

Summary 
Total  Income 
Less  Total  Cost 
Net  Gain  for  year 
Net  Gain  per  acre  planted 

Only  one  other  type  of  analysis  for  this  purpose  is  pre- 
sented herein.  It  is  called  the  Comparative  Crop  Produc- 
tion and  Cost  Record,  an  outline  of  which  is  given  in  Illus- 
tration 67. 

It  differs  from  the  Comparative  Analysis  of  Crop  Account 
(Illustration  64)  principally  in  the  fact  that  it  attempts 
to  account  for  all  bushels  or  tons  of  the  crop  produced, 
as  well  as  to  show  values  for  production,  sales,  inventories 
and  other  items.  The  arrangement  is  also  different.  In 
the  Comparative  Crop  Production  and  Cost  Record,  an 
effort  is  made  to  trace  the  quantity  and  value  of  a  crop 
from  the  beginning  of  the  year,  through  harvest  and  the 
disposal  of  the  crop  to  the  inventory  at  the  close  of  the 
year. 


t: 


J'- 


I 


N 


ILLUSTRATION  67 
Comparative  Corn  Prodpction  and  Cost  Record 


Line 
No. 


(1) 
On    Hand    at 
Start 


Year  Ended  Feb.  28th 


1917 


No.  of  bu. 


2     Value  of  crop 


(?) 


Harvested  dur- 
ing the  year 


3 

4 


730 


1918 


1,640 


$413.8) 


No.  of  bu 


Total  cost  of  crop 


2.513 


$893.50 


$656.00 


1919 


2.625H 


$928.31 


No.  of  acres 


Bu-  per  acre  (Line  3  divided  by 
Line  5) 


8 


Cost  per  bu.  (Line  4  divided  by 
Line  3) 


50 


50 


57 


46 


(3) 

Total  Available 

for  use  or  Sale 

(4) 


Available  Sup- 
ply Accounted 
For 


9 


10 


11 
12 


Cost  per  acre  (Line  4  divided  by 
Line  5) 


$.356 


$17.87 


$.354 


$16.29 


Bushels  (Line  1  plus  3) 


Value  (Line  2  plus  Line  4) 


13 
14 


Sold  and 
Fed 


On  hand  at 
close  of  yr. 
inc'l  seed  I  Value 


No.  of  bu. 


3.240 


$1,307.30 


1.580 


4,265>4 


$1,584.31 


3,235 


Value 


No.  of  bu. 


$1,170.00 


1.640 


15 


16 


Shrinkage 


No.    of    bu.    Lines 
9-(ll  plus  13) 


$656.00 


$3,932.55 


i,(mH 


$360.67 


20 


Value  (line  15  x 
Line  7) 


(6) 
profit  on  Crop 


17    Net  Profit  (per  ledger  a/c)  Line 
12  plus  14—10 


18 


(•) 

Where 
Harvested 


7.12 


none 


none 


$518.70 


Profit  per  acre  planted,  Line  17 
divided  by  Line  5 


19      Field  or  fields  harvested 


$10.37 


$2,708.91 


Nos.  5 
and  8 


$47.52 


Nos.  5, 
6  and  7 


362 


INTERPRETATION  OF  COST  ACCOUNTS      36S 

From  a  study  of  Illustration  67,  it  is  observed  that  there 
are  six  main  divisions  of  the  subject  matter,  the  first  four 
being  subdivided  to  show  quantities  as  well  as  values. 
(1)  On  hand  at  the  start  of  the  year.  (2)  Harvested  dur- 
ing the  year.  (3)  Total  available  for  use  or  sale.  (4) 
Available  supply  accounted  for.  (5)  Profit  on  the  crop. 
(6)  Where  harvested. 

This  form  of  analysis  is  meant  as  a  substitute  for  the 
Comparative  Analysis  of  Illustration  64.  However,  both 
of  them  could  be  prepared  if  the  size  of  the  farm  war- 
ranted such  preparation.  The  **Line  No.''  of  Illustration 
67  has  no  special  relation  to  the  * '  Result  No. ' '  of  Illustra- 
tion 64. 

Policies  of  management  may  be  formulated  from  a  study 
of  the  Production  and  Cost  Record  of  Illustration  67  in 
a  way  similar  to  that  described  under  "A  Study  of  the 
Comparative  Analysis,"  page  357. 

As  suggested  in  connection  with  the  first  Crop  Analysis, 
the  Comparative  Crop  Production  Record  may  be  placed 
in  a  bound  columnar  book,  permitting  the  figures  of  from 
five  to  ten  years  to  be  placed  side  by  side  for  study  and 
criticism. 

Here  again.  Com  account  is  used  only  as  an  example 
of  crops.  The  figures  taken  from  the  Field  and  Corn  ac- 
counts of  Illustration  63  are  used  in  Illustration  67,  in  the 
column  for  the  year  1917  (ended  Feb.  28,  1918).  This  af- 
fords an  excellent  comparison  of  the  relative  value  and  ap- 
plication of  Illustrations  64  and  67,  since  both  are  created 
from  the  same  set  of  figures. 

It  should  be  noted  that  shrinkage  is  provided  for,  but 
that  there  was  none  to  report  for  the  year  ended  Feb.  28, 
1918.  This  undoubtedly  is  due  to  the  method  of  taking 
the  inventory  of  corn  on  Feb.  28,  1918.  The  inventory 
on  that  date,  amounting  to  10301^  bushels,  was  probably 
obtained  by  examining  the  figures  for  bushels  produced. 


j: 


< 


,* 


It 


ii 


364  FARM  ACCOUNTING 

sold  and  fed  as  shown  in  Com  account  (^-J^f  ^^  f  j^ 
By  arithmetical  process  it  appears  that  1030/2  bushels 
should  be  left  after  the  year's  operations.  If  the  farmer 
examines  the  crib  and  thinks  that  that  figure  is     near 

enouffli''  he  may  use  it.  „  i;i 

The  other  method  of  taking  inventory  of  corn  would 
probably  result  in  a  shrinkage  being  shown.  That  is  it 
fhe  farmer  measures  the  crib  and  calculates  the  number 
of  bushels,  it  would  quite  probably  be  less  than  the  figures 
obtained  by  performing  the  arithmetical  work  in  connec- 
tion with  the  Corn  account.  ,        ,,^ 

Line  19  of  Illustration  67  indicates  where  the  crop  was 
raised  in  each  of  the  several  years.    This  affords  a  com-, 
parison  of  methods  of  farming,  rotation,  fertilizing  and 
similar  elements,  if  a  record  is  made  on  the  farm  p  ot  or 
elsewhere  of  the  conditions  existing  in  the  several  fields. 

cCwative  Production  of  All  Crops.-If  it  is  found 
desirable  in  any  case  to  make  a  comparative  study  of  sev- 
eral crops  produced  in  a  given  year,  the  form  used  in  Illus- 
tration 67  may  be  employed  without  changing  the  subject 
matter.  It  is  necessary  only  to  substitute  the  names  of  the 
crops  at  the  heads  of  the  columns  in  place  of  the  years^ 
Such  a  table  would  bear  the  same  relation  to  Illustration 
67  that  Illustration  66  bears  to  Illustration  64. 

By  making  such  a  table  of  information,  one  can  study 
the  results  of  several  crops  together.  Such  a  ^f^'^^f 
advocated  as  a  general  rule,  since  the  same  effect  is  to 
be  obtained  by  placing  side  by  side  the  Comparative  Pro- 
duction Records  of  the  several  crops,  prepared  as  in  lUus- 

tration  67.  a  u         ^„„ 

Comparison  of  Fields.-As  an  aid  to  good  farm  man- 
agement, a  Comparative  Field  Production  Record  may  be 
prepared  from  year  to  year.  Such  a  record  could  be 
placed  in  a  bound  book  having  space  for  several  years 
figures  side  by  side.    lUustration  68  shows  a  typical  out- 


INTERPRETATION  OF  COST  ACCOUNTS     S65 

line  of  such  a  production  record  for  Field  No.  5.    A  sep- 
arate record  is  prepared  for  each  field. 


ILLUSTRATION  68 

Comparative  Field  Production  Record 

Field  No.  5—25  Acres 

Item 

Data 

Year  Ended  Feb.  28th 

1917 

1918 

1919 

1 

Crop  or  Crops  Harvested 

Sweet 
Clover 

Corn 

Com 

2 

No.  of  bushels  or  tons  harvested . . 

1,109J^ 

3 

Bu.  or  tons  per  acre  (Item  2-^25) . 

44.4 

4 
.   5 

Total  Production  Cost 

$285.56 

Production  Cost  per  acre  (Item 

4  ^  25)          

$11.42 

6 

Production  Cost  per  bushel  or  ton 
ritem  4  -s-  Item  2) 

$.257 

.      7 

Remarks  concerning  treatment  of 
soil  for  the  crop  raised 

Horse 
manure 
and 
sweet 
clover 
plowed 
under 

In  the  preparation  of  the  Comparative  Field  Production 
Record,  item  1  may  be  obtained  from  the  farm  plot ;  but 
more  often  it  comes  from  the  memory  of  the  farmer.    Item 

2  is  obtained  from  the  ledger  account.  In  this  instance 
the  11091/2  comes  from  Field  No.  5  account  of  Illustration 
63.    Likewise  item  4  comes  from  the  same  account.    Items 

3  and  5  are  obtained  by  division  as  indicated,  the  divisor 
25  being  the  number  of  acres  in  Field  No.  5,  as  indicated 


'F 


CS6 


FARM  ACCOUNTING 


at  the  top  of  Illustrations  63  and  68.  Item  6  is  obtained 
by  dividing  the  total  production  cost  (item  4)  by  the  num- 
ber of  bushels  or  tons  harvested  (item  2).  It  may  be  taken 
from  the  Field  account,  also. 

A  table  similar  to  the  one  just  described  is  subject  to 
modification  to  suit  conditions  and  the  demands  of  the 
farmer.  By  comparing  the  Production  Record  of  Field  No. 
5  with  other  fields  in  any  one  year  or  series  of  years,  conclu- 
sions may  be  drawn  as  to  the  relative  value  of  different 
kinds  of  fertilizer,  rotation  of  crops,  methods  and  time  of 
plowing  and  other  facts  of  interest  and  value. 

In  such  a  comparison  the  most  essential  elements  to  note 
are  items  3,  6  and  7,  as  numbered  in  Illustration  68.  The 
bushels  or  tons  per  acre  used  in  connection  with  the  facts 
concerning  the  treatment  of  the  soil  are  very  essential. 

A  very  good  way  to  study  the  cropping  situation  in  gen- 
eral is  to  use  the  Field  Production  Record  (Illustration  68) 
along  with  the  Crop  Analysis  (Illustrations  64  and  66)  or 
the  Crop  Production  Record  (Illustration  67).  Such  a 
study  must  be  careful  and  thorough  in  order  to  get  results 
that  will  be  effective.  The  more  one  studies  such  tables, 
the  more  he  finds  to  assist  him  in  directing  the  policies  of 
^he  farm. 

Comparison  of  Livestock.— It  has  been  pointed  out  that 
general  policies  in  connection  with  the  growing  of  crops  on 
a  farm  may  be  influenced  considerably  through  the  prep- 
aration of  analytical  and  comparative  tables,  all  of  which 
are  prepared  primarily  from  the  ledger  accounts.  In  a 
similar  manner  the  raising  of  livestock  may  be  influenced 
by  a  study  of  comparative  results  arising  from  the  oper- 
ations of  two  or  more  classes  of  stock  over  a  period  of  two 
or  more  years. 

Using  the  Swine  account  as  typical  of  livestock,  the  de- 
tails of  an  account  after  closing  at  the  end  of  a  fiscal  yea,^ 
?ire  presented  in  Illustration  69. 


INTERPRETATION  OF  COST  ACCOUNTS     367 

The  figures  of  this  Swine  account  are  used  for  the  Com- 
parative Analysis  which  is  shown  in  Illustration  70. 

The  Swine  account  as  presented  in  Illustration  69  con- 
tains a  credit  of  $200  for  swine  which  were  lost  by  cholera. 
The  debit  that  was  made  on  Jan.  25,  1917,  to  offset  this 
credit  was  placed  in  the  Loss  and  Gain  account.  The  lat- 
ter account,  then,  contains  two  items  relating  to  swine  dur- 
ing the  year.  The  one  for  $200  on  Jan.  25,  1917,  indicates 
a  loss  of  an  extraordinary  nature.  The  one  on  Feb.  28, 
1917,  for  $10  is  the  loss  on  general  operations  in  swine  for 
the  year.  This  method  of  recording  unusual  losses  in  live- 
stock is  explained  under  ** Death  of  Livestock,''  Chapter 
VII. 

ILLUSTRATION  69 
Swine  Account  Closed  and  Ready  for  Analysis 

Svnne 


1916 

Mar.    1  Inventory 

.$400.00 

1917 

Feb.  28  Feed  for  year. 

.     81.00 

Feb.  28  Labor 

.     10.10 

Feb.  28  Horse  Labor . , 

.60 

Feb.  28  Bldg.  Expense. 

3.00 

Feb.  28  Int.  on  hog  lot. 

4.00 

Feb.  28Equipt.  Exp.. 

.60 

Feb.  28  General  Exp.. 

.70 

$500.00 

1917 

Mar.    1  Inventory 

.$150.00 

1916 

Dec.  22  Cash  Sale $140.00 

1917 

Jan.   25Diedof  cholera  200.00 

Feb.  28  Inventory 150.00 

Feb.  28  Loss  and  Gain.     10.00 


$500.00 


The  Comparative  Analysis  of  Swine  Account  presented 
in  Illustration  70,  shows  the  general  form  and  contents  of 


ILLUSTRATION  70 
Comparative  Analysis  of  Swine  Account 


Item 
No. 


!ti 


l| 


I 


'I 


(1) 

(2) 
(3) 

(4) 

(5) 

(6) 
(7) 


(8) 
(9) 

(10) 

(11) 
(12) 

(13) 

(14) 
(15) 
(16) 


For  Year  Ended  Feb.  28th 


1917 


1918 


Cost 

Feed 

Man  Labor 

Horse  Labor 

Building  Expense 

Rent  or  interest  on  hog  lot 

Equipment  Expense 

General  Expense 

Total  cost  of  maintenance 

Add  Inventory  at  beginning  of  year . 

Cost  of  all  swine  handled  during  the 
year 

Deduct:  Swme  lost  by  death  during 
the  year 

Cost  of  swine  available  for  sale  or 
use  during  the  year 

Deduct  Inventory  at  close  of  year . 

Cost  of  swine  sold  and  used  during 
the  year 


$81.00 

10.10 

.60 

3.00 

4.00 

.60 

.70 


$100.00 
400.00 


$500.00 
200.00 


$300.00 
150.00 


1919 


Income 

Swine  sold 

Swine  used  by  household 

Total  Income 


$150.00 


$140.00 

XX.  XX 


$140.00 


Summary 
Total  income  from  swine  for  year . 
Total  cost  of  swine  sold  and  used 

during  the  year  (Item  7) 

Net  Gain  in  ordinary  swine  opera- 
tions for  year 

Cost  per  cwt.  of  swine  handled 

Cost  per  cwt.  of  swine  sold  and  used . 

Per  cent  of  total  cost  of  maintenance 

made  up  of  feed  cost 

368 


$140.00 


150.00 


-$10.00 


$10.10 
10.30 

81 


INTERPRETATION  OF  COST  ACCOUNTS      369 

a  statement  designed  to  give  facts  concerning  a  specific 
class  of  livestock.  Similar  statements  are  prepared  for 
cattle,  sheep,  poultry,  or  horses.  In  any  case,  the  data  in- 
cluded in  the  Comparative  Analysis  would  come  from  the 
ledger  account  of  the  livestock  in  question. 

Preparation  of  Livestock  Analysis.— By  referring  to  Il- 
lustrations 69  and  70,  it  is  noticed  that  the  operations  in 
swine  resulted  in  a  loss  of  $10  from  ordinary  operations 
in  addition  to  a  $200  loss  from  disease.  A  comparison 
with  the  preceding  year  or  years  might  tend  to  show  what 

caused  the  loss.  . 

The  preparation  of  the  Comparative  Analysis  of  Swme 
Account  of  Illustration  70  is  taken  up  below  in  detail  by 

items.  „ 

(1)  The  total  cost  of  maintenance,  $100,  is  the  sum  ot 
the  seven  amounts  above  it,  each  one  of  which  is  traceable 
directly  to  the  debit  side  of  Swine  account  of  Illustration 

69. 

(2)  Taken  from  the  led^r  account,  being  the  first  debit 

entry  for  the  year. 

(3)  The  sum  of  items  (1)  and  (2). 

(4)  Taken  from  the  credit  side  of  the  Swine  account. 

(5)  Item  (3)  minus  item  (4). 

(6)  Taken  from  the  credit  side  of  the  Swine  account. 

(7)  Item  (5)  minus  item  (6). 

(8)  &  (9)  Taken  from  the  credit  side  of  the  Swine  ac- 

count. 

(10)  Sum  of  items  (8)  and  (9). 

(11)  Same  as  item  (10). 

(12)  Same  as  item  (7). 

(13)  Difference  between  items  (11)  and  (12).  In  the 
illustration,  this  result  is  a  loss  rather  than  a  gain,  hence 
it  is  shown  as  —$10,  leaving  the  name  of  the  item  un- 
changed as  **net  gain  in  ordinary  swine  operations  for 
year. ' ' 


370 


FARM  ACCOUNTING 


II 


(14)  Item  (3)  divided  by  the  number  of  cwt.  of  swine 
sold,  used,  buried  and  on  hand.  That  is,  the  number  of 
cwt.  of  swine  removed  from  the  drove  during  the  year 
plus  the  cwt.  (estimated)  still  in  the  drove  at  the  end 
of  the  year,  is  used  a&  a  divisor.  The  result  ($10.10;  in 
the  case  at  hand  is  a  good  figure  to  compare  with  other 
years  to  indicate  the  relative  cost  of  producing  one  hun- 
dred pounds  of  pork  on  the  hoof,  regardless  of  what  the 
ultimate  use  of  the  animal  is  to  be. 

(15)  Item  (7)  divided  by  the  number  of  hundredweight 
of  swine  sold  in  the  market  and  butchered  for  the  house- 
hold. This  result  when  compared  with  a  similar  result  in 
other  years  gives  the  cost  per  cwt.  of  producing  the  pork 
that  results  in  the  net  gain  or  loss  in  ordinary  swine  oper- 
ations for  the  year. 

(16)  Item  (1)  divided  into  the  cost  of  feed  and  multi- 
plied by  100.  This  amount,  when  compared  with  similar 
amounts  of  other  years,  affords  a  very  good  indication  of 
the  relative  efficiency  of  handling  the  livestock.  If  the 
per  cent  cost  of  feed  remains  nearly  uniform  from  year 
to  year,  any  marked  variation  in  item  (14),  cost  per  cwt. 
of  swine  handled,  would  tend  to  show  the  efficiency  or  in- 
efficiency of  management. 

Analysis  of  Animal  Products. — In  the  case  of  dairy  cat- 
tle, sheep  and  poultry,  the  Comparative  Analysis  is  pre- 
pared to  show  the  income  from  the  marketable  products, 
separate  from  the  income  from  the  sale  of  the  animals 
themselves.  It  is  impractical  to  attempt  to  separate  the 
costs  between  the  animals  and  the  product.  For  example, 
if  one  wishes  to  find  the  cost  of  producing  a  dozen  eggs, 
he  is  confronted  with  a  more  or  less  theoretical  problem. 
It  involves  a  definite  analysis  of  food,  for  example,  finding 
out  how  much  goes  to  produce  the  eggs  and  how  much  is 
consumed  in  maintaining  the  hens  in  a  normal  condition. 

It  is  true  that  one  can  use  one  or  two  lines  at  the  bottom 


INTERPRETATION  OF  COST  ACCOUNTS      371 

of  a  livestock  comparative  analysis  page  to  show  certain 
unit  facts  of  interest  concerning  the  products  of  the  ani- 
mals. Care  should  be  exercised,  however,  in  interpreting 
the  figures  so  presented.  If  the  total  cost  of  maintaining 
poultry  for  a  year  is  $64  (including  interest,  feed,  labor 
and  all  other  elements  of  cost),  and  400  dozen  eggs  are 
gathered,  one  should  not  say  that  it  cost  16  cents 
(64  ^  400)  a  dozen  to  produce  eggs.  It  is  so  common  on 
the  average  farm  to  use  or  sell  poultry  for  meat  that  some 
of  the  cost  of  $64  is  expended  in  an  effort  to  keep  the  flock 
alive  for  other  purposes  than  to  lay  eggs. 

In  a  Comparative  Analysis  of  Poultry,  it  is  a  good  plan 
to  show  the  number  of  dozen  eggs  per  hen  or  some  similar 
figures.  Likewise,  in  the  case  of  dairy  cattle,  the  number  of 
pounds  or  gallons  of  milk  and  cream  per  cow  may  be 
shown.  The  number  of  pounds  of  wool  per  sheep  is  simi- 
larly shown  in  the  Analysis  of  Sheep  Account.  For  experi- 
mental purposes  a  record  is  made  of  the  milk  or  wool  taken 
from  each  cow  or  sheep.  Such  a  detailed  procedure,  natu- 
rally, is  not  practical  on  the  average  farm. 

Accounts  as  a  Guide  to  Management. — The  preparation 
of  analytical  and  comparative  tabulations  is  one  of  the 
stepping  stones  to  successful  farm  management.  In  con- 
nection with  some  of  the  tabulations  on  the  several  preced- 
ing pages,  suggestions  have  been  made  as  to  the  ways  they 
might  be  interpreted  in  order  to  assist  in  shaping  the  poli- 
cies of  the  farmer.  No  attempt  is  made  herein  to  state  how 
the  farmer  shall  remedy  conditions  after  his  attention  is 
called  to  them  by  the  accounts  and  analyses.  A  consider- 
ation of  such  remedies  is  a  part  of  farm  management. 

In  general  it  may  he  stated  that  accounts  and  cost  rec- 
ords of  various  sortsj  including  analytical  tables,  present 
facts  which  cause  the  farmer  {!)  to  alter  present  methods 
of  operation  or  (2)  initiate  new  projects.  This  should  not 
he  interpreted  as  meaning  that  every  account  or  cost  record 


t  > 


^ 


I 

i 


372  FARM  ACCOUNTING 

prepared  is  to  lead  to  some  change  in  policy.  It  means,  in 
connection  with  present  methods,  that  a  careful  examina- 
tion of  the  accounts  and  records  might  indicate  where  a 
change  in  policy  or  method  would  he  desirahU.  It  means, 
in  connection  with  new  projects,  that  great  care  should  he 
exercised  in  inaugurating  any  policies  without  first  exam^ 
indng  and  studying  the  accounts,  records  and  analytical 
tables  to  see  if  such  new  policies  wUl  ''pay.'' 

Altering  Present  Policies.— A  study  of  the  accounts, 
together  with  the  cost  records,  requires  special  training  in 
order  to  read  the  contents  intelligently.  When  a  certain 
OToup  of  figures  indicates  some  unfavorable  condition  the 
farmer  should  not  seek  to  change  the  conditions  without 
bringing  all  correlative  facts  into  consideration. 

If  the  first  impulse  is  to  abandon  certain  operations  be- 
cause of  the  exces^ve  cost,  erne  must  not  overlook  the  fa^t 
that  some  crops  or  livestock  are  raised  as  auxiliary  ele- 
ments of  the  main  business.    As  mch,  they  really  help  to 
reduce  the  cost  of  the  other  mmn  crops  because  they  utilize 
labor  at  times  when  it  is  not  needed  elsewhere.    If  such 
farm  elements  or  operations  were  not  conducted,  the  cost 
of  labor  of  the  main  crops  would  be  increased  because  the 
laborers'  total  wages  would  be  distributed  over  fewer  pro- 
ductive hours.    This  would  cause  each  productive  hour  to 
bear  a  higher  rate.    Accordingly  the  general  crops  would 
be  charged  with  a  greater  amount  of  labor  in  the  aggregate 
if  it  were  not  for  the  auxiliary  element. 

When  an  auxiliary  crop  is  charged  with  the  full  hourly 
rate  for  the  labor  performed  on  it,  and  is  also  charged  with 
all  other  costs,  it  probably  shows  a  loss.  The  account  of 
such  an  auxiliary  crop  should  be  analyzed  and  studied  very 
carefully  before  the  crop  is  discontinued  as  being  too  ex- 
pensive. ,  -T 

Some  farmers  advocate  charging  such  auxiliary  crops  or 
livestock  with  labor  at  about  half  price,  say  ten  instead  of 


INTERPRETATION  OF  COST  ACCOUNTS      S73 

twenty  cents  an  hour,  since  the  labor  is  used  on  them  at 
a  time  of  the  day  or  year  when  it  could  not  be  used  very 
well  for  any  other  operation.  This  plan  is  undesirable. 
Accounts  should  show  the  facts  as  they  exist.  Policies 
formed  from  these  facts  may  and  should  be  formed  only 
after  using  the  facts  in  a  more  or  less  flexible  manner,  in 
connection  with  one's  general  knowledge  of  the  peculiari- 
ties of  the  business. 

A  Guide  in  Handling  Labor.— One  of  the  biggest  items 
of  cost  on  a  farm  is  labor.  Man  labor  and  horse  labor  con- 
stitute a  considerable  portion  of  the  cost  of  each  produc- 
tive element.  The  exact  proportion  for  each  of  the  several 
elements  varies  from  about  one-fifth  to  one-half  of  the  total 
cost.  This  proportion  for  each  element  could  be  reduced  as 
indicated  above,  if  idle  time  could  be  reduced  or  eliminated. 

A  reduction  in  idle  time  is  not  likely  to  be  effected  until 
it  becomes  apparent  to  the  proprietor  of  a  farm  that  idle 
time  exists.  There  are  graphical  methods '  showing  quite 
vividly  in  any  particular  year  or  series  of  years  that  much 
of  the  time  paid  for  is  not  as  productive  as  it  should  be 
for  the  employer. 

Illustration  71  presents  a  Monthly  Distribution  of  Labor 
for  both  men  and  horses  for  twelve  successive  months.  It 
shows  the  number  of  hours  worked  on  the  average  by  each 
man  and  horse  during  each  month  of  the  year.  The  hours 
given  to  crop  production  are  shown  also.  A  valuable  part 
of  the  table  from  the  farmer's  point  of  view  is  that  which 
shows  the  per  cent  of  time  given  to  crops.  From  figures 
compiled  in  this  way  from  the  labor  and  horse  labor  rec- 
ords, one  can  see  in  what  months  he  might  arrange  to  have 
other  work  available  for  both  men  and  horses. 

The  Illustration  shows  that  the  average  man  worked 
over  3000  hours  during  the  year,  while  the  average  horse 
worked  slightly  over  1200  hours.    Of  the  total  time  worked 

» University  of  Missouri  Research  Bulletin  No.  6. 


si 


li 


i 


S74 


FARM  ACCOUNTING 

ILLUSTRATION  71 
Monthly  Distribution  op  Labor 


Month 


March 
April . . 
May . . 
June . . 
July.. 
Aug... 
Sept.. 
Oct... 
Nov. . . 
Dec . . . 
Jan. . . 
Feb... 


Average  Hours 
Worked  per  Month 


Hours  Given  to 
Crop  Production 


Man 


Totals 


260.9 

277.5 

304.0 

318.0 

317.0 

276.5 

271.5 

265.5 

260.7 

255.2 

225.3 

239.2 


Horse 


3271.3 


94.4 

119.0 

155.3 

161.2 

152.2 

118.7 

106.3 

100.2 

67.5 

64.9 

35.3 

41.6 


Man 

81.3 

94.2 

101.3 

150.5 

108.3 

89.3 

85.3 

90.2 

56.0 

39.8 

16.2 

18.6 


1216.6 


931.0 


Horse 

61.6 

75.8 

110.0 

122.7 

91.6 

66.5 

61.8 

58.4 

23.5 

14.7 

6.9 

12.4 


Per  Cent  of  Time 
Given  to  Crops 


Man 


705.9 


31.2 

33.9 

33.3 

47.3 

34.2 

32.3 

31.4 

34.0 

21.5 

15.6 

7.2 

7.8 


Horse 


28.4 


65.3 

63.7 

70.7 

76.0 

60.2 

56.1 

58.2 

58.3 

34.8 

22.6 

19.5 

29.9 


58.0 


*  University  of  Missouri  Research  Bulletin  No.  6. 

by  man,  28.4%  was  on  crops,  while  58%  of  the  total  time 
worked  by  the  average  horse  was  spent  on  crops. 

The  monthly  distribution  of  labor  is  the  record  that  is 
looked  upon  as  the  starting  point  in  any  change  of  policy 
that  aims  to  utilize  the  men  and  horses  more  efficiently.  It 
shows,  for  instance,  that  only  7%  to  8%  of  man^s  time  in 
January  and  February  is  used  in  connection  with  crops ; 
and  that  about  20%  to  30%  of  horse's  time  is  so  used  dur- 
ing the  same  months. 

The  first  conclusion  to  be  drawn  from  such  a  tabulation 
should  be  that  an  opportunity  exists  for  giving  the  farm 
laborer  something  to  do  in  the  winter  months  and  at  cer- 


1  ,\ 


INTERPRETATION  OF  COST  ACCOUNTS     375 

tain  times  during  the  summer  months.  Just  what  the  na- 
ture of  the  work  shall  be  is  to  be  decided  by  the  farmer 
himself.  It  might  mean  the  addition  of  some  new  produc- 
tive element. 

The  figures  under  discussion  in  Illustration  71  are  taken 
from  four  farms  in  Missouri  engaged  in  diversified  farming 
with  dairying  on  a  small  scale.  The  total  area  of  the  four 
farms  is  723  acres,  or  an  average  of  180%  acres  per  farm. 
There  were  23  work  animals  on  the  four  farms  at  the  time 
of  the  investigation.  This  indicates  that  there  was  one 
work  animal  to  about  every  31.4  acres  of  land. 

It  should  he  noted  in  connection  with  the  monthly  distri- 
hution  of  labor  figures  presented  above  that  the  total  hours 
for  man  and  horse  represent  the  time  spent  on  the  farm 
in  some  recognized  active  capacity.  They  do  not  represent 
the  average  hours  that  might  have  been  worked  if  everyone 
had  worked  full  time  every  day.  Likewise,  the  per  cent 
of  time  given  to  crops  means  the  per  cent  of  the  total  time 
worked  that  was  devoted  to  crops.  For  example,  the  table 
total  shows  that  in  March  the  average  man  worked  260.9 
hours,  31.2%  of  which  was  spent  in  connection  with  crops. 
If  the  average  man  works  ten  hours  a  day  on  week  days, 
and,  say,  four  hours  on  Sundays,  the  total  time  for  work  in 
March  would  be  about  280  hours,  counting  26  week  days 
and  5  Sundays.  This  would  result  in  a  figure  showing  that 
29%  of  the  total  time  for  which  the  workman  was  paid  was 
spent  on  crops. 

Another  point  for  the  farmer  to  observe  in  studying  such 
a  Distribution  of  Labor,  is  that  the  horses  are  used  much 
less  efficiently  than  the  men.  Considering  the  total  hours 
shown  in  Illustration  71,  it  appears  that  the  average  man 
worked  3271.3  hours  during  the  year  and  the  average  horse 
worked  1216.6  hours.  If  we  consider  300  working  days  to 
the  year,  these  totals  indicate  that  man  worked  10.9  hours 
and  horse  4  hours  a  day  on  the  average.    If  we  consider 


/ 


\.  i 


i 


li  ■ 


WjF' 


876 


FARM  ACCOUNTING 


365  working  days,  man  worked  9  hours  and  the  horse  3.3 
hours  a  day.  Of  course,  this  does  not  imply  that  horses 
ought  to  work  as  many  hours  a  day  as  a  man  does  through- 
out the  year. 

Since  the  four  farms  in  this  survey  under  discussion 
practiced  diversified  farming  with  dairying  on  a  small 
scale,  the  man  labor  was  utilized  more  efficiently  through- 
out the  year  than  it  would  be  on  a  farm  engaged  primarily 
in  raising  corn  or  wheat,  without  any  dairying  operations. 
It  should  be  made  a  practice  by  each  farmer  keeping 
labor  and  horse  labor  records,  as  described  and  illustrated 
in  Chapter  VIII  on  Cost  Accounting,  to  study  them  care- 
fully at  the  close  of  each  year.  A  careful  study  of  tbtals 
by  months  may  lead  the  thoughtful  farmer  to  find  swne 
means  of  using  men  and  horses  in  a  profitable  way,  during 
the  times  which  are  ordinarily  dull.  ^ 

Tests  of  Labor  and  Horse  Labor  Eflaciency.— T/ie  num- 
ber of  crap  acres  per  work  horse  and  the  number  of  cro-p 
acres  per  man  are  two  figures  that  should  he  shown  at  the 
bottom  of  a  page  used  for  recording  the  monthly  distri- 
bution of  labor.  They  serve  to  indicate  the  efficiency  with 
which  men  and  horses  are  used  on  a  farm. 

From  an  investigation  of  700  farms  in  Indiana,  Illinois 
and  Iowa  ^  it  has  been  found  that  the  crop  acres  per  work 
horse  ranged  from  9.4  acres  on  small  farms  to  32.2  acres 
on  farms  averaging  nearly  1000  acres.  The  exact  figures 
tabulated  as  a  result  of  the  investigation  are  given  in  Illus- 
tration 72.  Similarly  it  has  been  determined  that  75  to 
80  acres  per  man  is  a  reasonable  allowance. 

*  For  other  references  on  the  utilization  of  labor,  see  Research  Bul- 
letin No.  16,  Wisconsin  Agricultural  Experiment  Station ;  Bulletin  No. 
125,  University  of  Missouri  College  of  Agriculture,  ''Cost  of  Produc- 
tion on  Missouri  Farms,"  pages  310-315;  also  Bulletin  No.  3  of 
the  U.  S.  Dept.  of  Agriculture,  ''A  Normal  Day's  Work  for  Various 
Farm  Operations." 
•Bulletin  of  U.  S.  Dept.  of  Agriculture,  No.  41. 


INTERPRETATION  OF  COST  ACCOUNTS     377 

ILLUSTRATION  72 

Table  XX — Relation  of  the  Size  of  the  Farm  to  the  Number 

OF  Crop  Acres  on  W^ich  a  Horse  Can  be  Utilized 

ON  700  Farms  in  Indiana,  Ilunois  and  Iowa 


Farms 


Area 

Num- 
ber 

Average 

Size 
(Acres) 

Average 
Crop 
Area 

(Acres) 

Average 
No.  of 
Work 
Horses 

Crop 

Area  Per 

Horse 

(Acres) 

40  acres  anH  Ipss 

45 

114 

120 

130 

93 

75 

35 

37 

30 

12 

5 

4 

36.6 
71.4 
107.2 
149.3 
183.6 
227.4 
262.5 
305.6 
364.1 
474.8 
652.6. 
991.2 

26.4 
56.7 
86.0 
122.4 
143.4 
184.9 
211.2 
233.8 
298.0 
368.6 
555.4 
612.0 

2.8 

3.6 

4.5 

5.8 

6.6 

7.8 

8.4 

9.5 

10.8 

13.1 

19.4 

19.0 

9.4 

41  to 

80  acres 

15.7 

81  to 

120  acres 

19.1 

121  to 

160  acres 

21.1 

161  to 

200  acres 

21.7 

201  to 

240  acres 

23.7 

241  to 

280  acres 

25.1 

281  to 

320  acres 

24.6 

321  to 

400  acres 

27.6 

401  to 

560  acres 

28.1 

561  to 

720  acrfis    

28.6 

721  to  1-2.50  acres 

32.2 

The  standard  number  of  work  units  required  for  per- 
forming various  operations  on  the  farm  has  been  presented 
in  Farmers'  Bulletin  661.  Illustration  73  shows  the  work 
units  which  may  be  followed  in  determining  the  number 
of  horses  and  men  to  have  on  a  farm;  or  to  compare  with 
known  conditions  on  a  farm. 

Miscellaneous  Questions  of  Policy. — ^Aside  from  the 
handling  of  labor  there  are  a  number  of  other  questions  of 
farm  management  that  can  be  settled  by  a  careful  exam- 
ination of  accounts  and  records. 

The  feed  records  and  feed  summary  may  be  used  in  a 
study  of  the  relative  values  of  different  feeds;  or  in  other 


^t 


i[-' 


li 


ILLUSTRATION  73 

Approximate  Work  Units  Needed  for  the  Production  of 

Crops  and  in  Caring  for  Livestock,  etc;  a  Work  Unit 

BEING  A    10-HoUR   DaY   OF   MaN   OR  HORSE   LaBOR* 


Operation 


Work  Units  (10-HourDay) 


Production  of  Crops  {per  acre) 
Timothy,  alfalfa  and  clover  hay,  per  cut- 
ting  

Oats,  wheat,  barley,  rye,  buckwheat  and 

millet 

Com  husked  from  standing  stalks.  Corn 

Belt  States 

Com  husked  from  shock 

Com  for  silo 

Com  husked,  Southem  States 

Potatoes 

Cotton 

Sugar  Beets 

Melons 

Cabbage 

Peanuts 

Sorghum  sown  broadcast,  cut  for  hay . . 

Tobacco 

Field  Beans 

Apples 

Caring  for  Livestock  (per  year) 

Horses,  Com  Belt  States 

Horses,  Eastern  States 

Dairy  cows 

Young  stock,  cattle,  colts,  etc 

Ten  hogs.  Corn  Belt  States 

Ten  hogs,  Eastern  States 

Ten  brood  sows  and  raising  pigs  to  wean- 


mg 

100  ewes 

100  chickens  (well  cared  for) 


Man 


Horse 


2to3 

5 

6 

6      • 

4to6 

5to7 

3to4 

3to4 

8  to  12 

10 

8  to  12 

4to0 

7 

7 

4 

2 

13 

12 

3 

1 

4 

4 

20 

7 

5 

5 

15 

5 

8 

H 

12 

Yl 

15  to  20 

lto2 

2>^to3 

tNt 

10 

2 

20 

2 

30 

5 

50 

5 

15  to  25 

1 

»U.  S.  Dept.  of  Agriculture  Farmers^  Bulletin  No.  661. 
•Production  in  this  case  includes  both  the  technical  production  cost 
and  the  harvesting  cost. 

378 


INTERPRETATION  OF  COST  ACCOUNTS     379 

ways  connected  with  the  general  policy  of  finding  the  best 
ways  to  do  things  so  that  the  greatest  net  income  will  re- 
sult. 

Other  questions  that  might  arise  to  cause  one  to  decide 
whether  to  change  present  methods  and  policies  might  be 
enumerated  as  follows: 

(a)  Does  it  pay  to  hold  a  crop  for  a  rise  in  price  or  to 
sell  now  and  invest  the  money  at  a  fair  rate  of  interest  ? 

(b)  Why  does  barley  not  pay  as  well  as  potatoes? 

(c)  Why  does  wheat  not  pay  as  well  as  oats? 

(d)  Why  do  I  not  make  as  much  on  hogs  as  Mr.  A,  my 
neighbor? 

(e)  Does  this  field  produce  as  much  corn,  oats  or  alfalfa 
per  acre  as  that  one?    Why? 

Without  attempting  to  state  specifically  how  each  one 
of  these  questions  might  be  answered,  it  may  be  said  that 
the  starting  point  in  attempting  to  answer  any  such  ques- 
tions is  the  account  or  analytical  table.  It  is  true  that  an- 
swering questions  like  (a)  above  involves  considerable 
guesswork.  However,  the  point  to  remember  in  that, 
particular  case  is  to  figure  the  interest  on  the  money  tied 
up  in  corn.  It  is  not  considered  necessary  to  charge  Corn 
accowftt  with  interest  from  time  to  time  on  the  arrwunt  that 
it  might  sell  for.  Such  a  calculation  does  not  need  to  ap- 
pear  in  the  account.  It  should  he  made  as  a  supplementary 
calculation  in  determining  the  action  to  take  when  the 
price  of  the  crop  is  known  and  an  idea  is  formed  as  to 
whether  the  price  will  go  up  or  down. 

Initiating  New  Projects. — At  times,  the  farmer  is  con- 
fronted with  propositions  that  cause  a  considerable  expen- 
diture of  time  and  money.  Sometimes  the  proposed  change 
involves  the  abandonment  of  some  property  that  is  giving 
good  service.  It  is  upon  such  occasions  that  a  good  ac- 
counting system  coupled  with  a  knowledge  as  to  how  to  get 


580 


FARM  ACCOUNTING 


»1 


ii 


4 


the  most  out  of  it  will  help  the  fanner  in  making  wise 
decisions. 

Below  is  a  list  of  questions  which  are  likely  to  arise  for 
consideration  on  the  average  farm : 

(a)  Does  it  pay  to  have  a  tractor? 

(b)  Does  it  pay  to  have  a  milking  machine? 

(c)  Would  it  pay  to  buy  a  limestone  crushing  machine 
for  the  community  ? 

(d)  Would  it  pay  to  grub  the  stumps  out  of  the  pas- 
ture and  cultivate  it? 

(e)  Is  pasture  feeding  or  pen  feeding  preferable  for 

hogs? 

(f)  Does  it  pay  to  build  a  shelter  for  farm  implements? 

(g)  Does  it  pay  to  have  a  busker  shredder? 

(h)  Does  it  pay  better  to  pump  water  by  hand,  by  wind- 
mill or  by  gas  engine  ? 

(i)  Does  a  motor  truck  pay  better  than  freight  or  ex- 
press method  for  transporting  garden  truck  to  large  mar- 
kets ? 

(j)  Does  it  pay  to  have  water  troughs  for  cattle  in  the 
bam  in  view  of  a  reported  15%  increase  in  milk  produc- 
tion caused  thereby? 

(k)  Does  it  pay  to  buy  a  dairy  barn  ventilating  sys- 
tem? 

(1)  Does  it  pay  to  sell  old  apple  trees  for  saw  and  tool 
handles  or  to  burn  them  for  fuel  ? 

(m)  Does  it  pay  to  let  a  field  lie  fallow  for  a  year? 

(n)  Does  it  pay  to  plow  under  a  crop  of  clover  or  sweet 

clover  ? 

Such  questions  as  those  enumerated  require  a  knowledge 
of  local  conditions,  at  times.  In  general,  however,  they 
require  only  a  careful  study  of  conditions  as  brought  out 
by  the  accounts  and  records,  a  knowledge  of  the  effect  of 
various  elements  of  cost,  and  some  common  sense.  Before 
deciding  on  any  questions  like  the  ones  noted  above,  one 


INTERPRETATION  OF  COST  ACCOUNTS     881 

should  figure  out  everything  possible  in  dollars  and  cents. 
Then  he  is  ready  for  the  comparison  with  some  other  re- 
sults. Sometimes,  however,  the  changes  involve  a  weighing 
of  money  expenditure  against  convenience.  In  such  cases 
the  complete  cost  should  be  calculated  before  an  attempt  is 
made  to  decide  whether  such  cost  is  sufficient  or  insuffi- 
cient to  warrant  the  resulting  convenience  or  inconven- 
ience. 

The  experience  of  others  should  be  used  whenever  pos- 
sible in  determining  the  best  course  to  follow.  The  U.  S. 
Dept.  of  Agriculture  and  the  Experiment  Stations  of  most 
of  the  State  Agricultural  Colleges  have  performed  valuable 
experiments  intended  to  assist  the  farmer  and  save  him 
the  time  and  loss  that  are  often  necessary  to  prove  certain 
facts.  A  list  of  some  of  the  more  helpful  bulletins  and 
books  on  farm  management  or  accounts  is  given  in  the 
bibliography  at  the  close  of  the  book. 

ILLUSTRATIVE  PROBLEMS 

1.  Using  the  accounts  of  C.  P.  May  prepared  under  instruc- 
tions of  problems  3,  4  and  5,  Chapters  VIII  and  IX,  analyze  the 
Loss  and  Gain  account,  finding  the  income  as  an  individual,  as 
a  farmer,  as  a  laborer,  as  a  capitalist  (Income  from  Investment), 
and  as  a  manager. 

2.  Using  the  Com  account  of  C.  P.  May  as  kept  for  the  three 
years  under  problems  3,  4  and  5,  Chapters  VIII  and  IX,  pre- 
pare a  Comparative  Analysis  of  Com  Account  for  the  years 
ended  Feb.  29, 1916,  Feb.  28, 1917,  and  Feb.  28, 1918.  (See  Illus- 
tration 64.)  Be  prepared  to  discuss  the  facts  brought  out  by  the 
comparison. 

3.  Referring  again  to  the  C.  P.  May  accounts  for  the  year 
ended  Feb.  29,  1916,  prepare  a  Comparative  Analysis  of  Crop 
Accounts  for  the  year,  considering  only  com,  oats  and  wheat. 
(See  Illustrations  64  and  66.) 

4.  Prepare  a  Comparative  Com  Production  and  Cost  Record 
for  the  three  years  ended  Feb.  29,  1916,  Feb.  28,  1917,  and 


382 


FARM  ACCOUNTING 


ii 


I 


I 


Feb.  28,  1918,  using  the  data  in  the  C.  P.  May  accounts  referred 
to  above.     (See  Illustration  67.) 

5.  Construct  Comparative  Field  Production  Records  for  C.  P. 
May's  farming  operations  as  follows,  referring  to  Illustration 
68: 

(a)  Field  No.  1  for  the  three  years. 

(b)  Field  No.  2  for  the  three  years. 

(c)  Field  No.  4  for  the  three  years. 

6.  Prepare  a  Comparative  Analysis  of  Swine  Account  from 
the  operations  of  C.  P.  May  for  the  three  years.  (See  Illustra- 
tion 70.) 

REVIEW  QUESTIONS 

1.  Why  is  a  careful  scrutiny  and  intelligent  interpretation  of 

cost  accounts  desirable? 

2.  Compare  the  labor  incomes  of  tenant  and  landlord  opera- 

tors on  farms  from  which   the  Federal  Department  of 
Asrriculture  has  collected  data. 

3.  What  average  per  cent  profit  was  shown  for  absentee  land- 

lords in  the  investigation  referred  to  in  question  2'i 

4.  Does  the  word  cost  always  mean  the  same  thing?     Discuss. 

5.  Does  the  word  profit  always  mean  the  same  thing? 

6.  State   three   conditions   that   tend   to   govern   or  affect   the 

meaning  of  the  word  profit. 

7.  A  helpful  comparison  of  costs  or  profits  can  be  obtained  only 

under  what  fundamental  conditions? 

8.  How  would  you  proceed  to  "read"  from  a  Loss  and  Gain 

account  all  that  is  shown  therein  relative  to  the  year's 
operations  ? 

9.  What  is  the  starting  point  for  all  analyses  and  comparisons 

of  operating  results  for  a  given  period?     Why? 

10.  Describe  the  preparation   of  the   Comparative  Analysis  of 

Crop  Account. 

11.  In  studying  the  Comparative  Analysis  of  Crop  Account  what 

conclusions  may  be  drawn  from  variations  in  (a)  the 
cost  of  production,  (b)  the  cost  of  production  per  acre, 
(c)  the  cost  of  production  per  bushel,  (d)  the  total  cost 


INTERPRETATION  OF  COST  ACCOUNTS      383 

of  producing  and  harvesting,  (e)  the  total  cost  per  acre, 
(f)  the  total  cost  per  bushel,  (g)  the  cost  of  the  crop 
sold  and  used,  (h)  net  gain  for  the  year,  (i)  net  gain  per 
acre  planted? 

12.  What  benefits  might  accrue  from  a  comparative  study  of 

the  analysis  of  several  crop  accounts? 

13.  What  are  the  six  main  parts  into  which  a  crop  is  divided 

for  the  purpose  of  preparing  a  Comparative  Crop  Pro- 
duction and  Cost  Record? 

14.  State  the  essential  points  to  be  brought  out  in  the  prepara- 

tion of  a  Comparative  Field  Production  Record.  How 
can  such  a  record  be  used  to  assist  in  farm  management? 

15.  What  are  the  essential  points  to  be  emphasized  in  the  Com- 

parative Analysis  of  a  Livestock  Account? 

16.  Considering  Illustration  70,  state  what  conclusions  may  be 

drawn  from  any  variations  in  each  of  the  items  num- 
bered (1)  to  (16)  inclusive. 

17.  What  diflSculties  are  encountered  in  attempting  to  find  the 

net  cost  of  producing  eggs  or  milk? 

18.  How  may  accounts  be  used  to  assist  in  a  decision  to  alter 

present   policies  of  management? 

19.  Of  what  use  are  the  cost  accounts  and  records  in  an  attempt 

to  handle  labor  and  horse  labor  to  the  best  advantage? 

20.  What  data  should  one  try  to  obtain  in  order  to  test  the 

economic   utilization   of   labor   or  horse   labor? 

21.  Referring  to  Illustration  72,  what  is  the  average  number 

of  work  horses  on  farms  of  various  sizes?  How  many 
crop  acres  per  work  horse  are  there  on  the  average  farm 
in  the  investigation? 

22.  Referring  to  Illustration  73,  what  can  you  say  as  to  the 

relative  time  required  per  acre  of  each  of  the  more 
prominent  crops?  The  time  required  for  raising  various 
kinds  of  livestock? 

23.  How  may  the  accounts  be  used  in  helping  to  decide  upon 

certain  miscellaneous  questions  of  policy?  In  initiating 
new  projects? 


)1 


{■ 


% 


n 


APPENriX 

PRICES  AND  RATES  USED  ON  THE  FARM 

Interdepartmental  Transactions.— In  the  illustrations  and 
problems  in  the  foregoing  chapters  the  prices  have  been  given 
for  commodities;  and  rates  of  interest  arbitrarily  assigned 
almost  without  exception.  In  practical  farming  operations 
such  prices  and  rates  must  be  determined  in  other  ways  for 
each  transaction  as  it  arises. 

In  transactions  with  outsiders,  prices  are  fixed  by  market 
or  special  agreement.  In  transactions  or  adjustments  between 
farm  departments  prices  are  determined  according  to  logical 
principles  of  accounting  and  farm  management. 

It  has  been  pointed  out  that  a  profit  is  not  a  profit  unless 
every  element  of  cost  has  been  properly  considered— that  a 
profit  on  hogs  when  calculated  by  one  man  might  have  been 
shown  as  a  loss  under  the  method  of  accounts  employed  by 
another.  A  man  usually  deceives  no  one  but  himself  if  he 
does  not  show  the  true  profits  of  each  of  his  various  farming 
operations.  It  is  necessary,  therefore,  to  have  good  logic  and 
sound  accounting  principles  back  of  all  entries  that  affect  the 
profits  of  any  department. 

A  charge  to  Swine  and  a  credit  to  Com  account  for  the 
feed  consumed  will  tend  to  decrease  the  profit  on  swine  and 
increase  the  profit  on  com.  A  chaise  to  Household  and  a 
credit  to  Cattle  or  Dairy  Cattle  for  the  products  consumed  by 
the  family  will  tend  to  increase  the  profit  from  dairy  cattle 
and  increase  the  household  expenses.  It  follows,  then,  that 
the  price  at  which  the  swine  are  charged  for  feed,  and  the 
price  charged  to  the  household  for  dairy  products  will  have 
a  considerable  bearing  upon  the  financial  showing  of  the  pro- 
ductive elements  involved. 

The  transactions  between  any  of  the  farm  elements  do  not 

385 


]u^ 


386 


APPENDIX 


affect  the  profits  as  a  farmer,  however.  Transactions  between 
the  household  and  a  farm  element  do  affect  the  profits  as  a 
farmer  but  not  as   an  individual. 

Departmental  Cost  Method  Used. — Cost  accounting  on  the 
farm  is  operated  under  the  departmental  system  as  opposed 
to  the  process,  product  or  estimating  systems.  *  *  DepartmentaF ' 
in  this  sense  means  a  class  of  goods  or  commodities.  Thus  each 
crop  and  each  class  of  livestock  constitutes  a  department. 

One  department  transfers  property  or  services  to  another. 
In  order  to  find  the  result  of  each  department  or  productive 
element,  it  is  necessary  to  favor  no  productive  element;  but 
to  make  all  charges  and  credits  to  each  one  as  nearly  as 
possible  on  the  basis  they  would  be  made  if  each  productive 
element  were  considered  as  the  only  one  on  the  farm.  In 
other  words  all  departments  should  be  given  the  same  con- 
sideration financially  because  of  their  juxtaposition  one  with 
another. 

Such  an  arrangement  in  commercial  accounting  might  bring 
up  the  question  of  inter-company  profits,  or  it  might  raise 
the  question  of  fictitious  profits.  Because  of  the  simplicity  of 
oi^anization  and  the  general  nature  of  farming  operations, 
no  necessity  arises  for  the  elimination  of  inter-departmental 
profits  in  the  way  inter-company  profits  are  eliminated  before 
preparing  a  consolidated  profit  and  loss  and  income  statement 
of  a  corporation. 

Fictitious  Profits. — ^We  agree  with  most  accountants  that 
fictitious  profits  should  not  be  shown  in  the  books  of  account. 
The  method  of  handling  interdepartmental  transactions  as 
stated  above  does  not  create  fictitious  profits,  however.  Fic- 
titious profits  are  those  which  show  the  business  as  making  a 
paper  profit.  A  paper  profit  is  one  that  has  not  resulted  from 
a  corresponding  increase  of  resources  or  decrease  of  liabilities 
through  transactions  with  outside  parties. 

Charging  corn  to  the  swine  at  market  price,  for  example, 
does  not  create  a  fictitious  profit  because  the  profits  of  the 
business  are  not  increased  as  a  result  of  the  entry.  It  is  true 
that  the  Com  account  is  credited  with  a  sale  at  selling  price 
before  the  product  leaves  the  premises.    If  the  inventory  of 


APPENDIX 


S87 


corn  at  the  close  of  the  year  were  credited  to  the  Com  ac- 
count at  selling  price,  such  an  entry  would  result  in  a  paper 
profit.  The  difference  in  effect  between  the  two  credits  named 
is  in  the  offsetting  debit.  In  the  case  of  the  ''sale"  of  com 
to  the  swine,  the  offsetting  debit  to  Swine  account  is  one 
which  increases  the  cost  (decreases  the  profit)  from  swine. 
This  leaves  the  net  farm  profit  the  same  as  if  the  com  were 
fed  at  any  other  price.  In  the  case  of  the  com  inventory 
entry  at  selling  price,  the  offsetting  debit  is  recorded  as  a 
charge  against  the  operations  of  the  next  year.  This  inflates 
the  profits  in  com  of  the  current  year  without  causing  a  de- 
crease in  the  profits  of  any  other  farm  element.  As  a  result 
the  net  profit  of  the  farm  is  inflated. 

Fictitious  profits  are  not  created,  then,  as  a  result  of  trans- 
ferring commodities  from  one  department  of  the  farm  to  an- 
other, no  matter  what  prices  are  used.  Fictitious  profits  are 
created  by  placing  prices  above  cost  price  on  any  property 
for  inventory  purposes. 

Pricing  Inventories.— It  is  hardly  necessary  to  state  any 
more  principles  concerning  the  pricing  of  property  for  in- 
ventory purposes,  if  one  could  apply  the  statement  in  the 
preceding  paragraph  to  all  forms  of  property,  without  any 
further  assistance.  The  statement  that  ''inventories  should 
be  recorded  in  the  books  of  account  at  cost  or  market  price, 
whichever  is  lower,"  is  a  very  common  one  in  commercial  ac- 
counting. Such  a  policy  of  pricing  inventory  should  be  prac- 
ticed in  every  department  of  the  farm. 

The  tendency  to  overvalue  property  for  inventory  purposes 
does  not  arise  in  the  case  of  buildings  or  equipment,  since  the 
percentage  method  is  used  in  these  types  of  property.  In 
placing  a  fair  value  on  livestock,  the  various  products  (grains 
and  feed),  household  furnishings  and  miscellaneous  supplies, 
however,  there  is  usually  more  of  an  inclination  toward  over- 
valuation. 

A  few  brief  principles  may  be  stated  for  pricing  inventories 
of  each  of  the  classes  of  property  mentioned. 

Livestock:  It  is  quite  impossible  to  find  the  cost  of  raising 
the  various  animals  up  to  a  given  age.    Accordingly  the  in- 


888 


APPENDIX 


i 


ventory  price  can  be  determined  more  easily  by  estimating 
downward  from  the  market  price.  For  example,  the  first  time 
a  colt  or  calf  is  inventoried  it  should  be  shown  at  approxi- 
mately 10%  below  its  selling  price  at  that  time.  The  same 
principle  should  be  followed  in  each  subsequent  year.  After  any 
given  animal  is  full-grown,  it  should  be  inventoried  at  the  same 
unit  value  each  year. 

Products:  Grain  and  feed  should  be  inventoried  at  cost 
price.  This  is  determined  from  the  Crop  account  in  any  specific 
instance  under  a  cost  system  as  described  in  Operation  of 
Crop  Account,  Chapter  IX.  When  the  cost  price  of  grain  and 
feed  is  not  available,  inventory  such  products  at  approximately 
10%  below  a  fair  average  market  price  for  the  several  months 
preceding  the  day  on  which  the  inventory  is  recorded.  Using 
such  an  average  market  price  tends  to  minimize  the  effect  of 
any  exceptionally  high  or  low  prices  that  might  exist  on  the 
inventory  date. 

Miscellaneous  Supplies:  Cement,  nails,  barbed  wire,  axle 
grease  and  other  commodities  commonly  listed  under  miscel- 
laneous supplies  inventory  usually  have  a  known  unit  cost 
price  available.  Such  cost  price  should  be  used  in  pricing  the 
portions  of  the  commodities  on  hand  when  taking  an  inventory. 

Household  Furnishings:  The  simplest  way  of  inventorying 
the  articles  in  the  house  is  to  place  a  reasonable  nominal  value 
on  the  entire  lot  of  furnishings,  say  $500,  $600,  or  some  other 
round  amount,  and  use  the  same  amount  from  year  to  year. 
The  amount  used  should  be  about  25%  less  than  the  aggre- 
gate cost  at  time  of  first  appraisal  for  inventory  of  all  house- 
hold furniture,  carpets,  rugs,  pictures,  clothing,  jewelry,  dishes 
and  kitchen  utensils.  After  such  appraisal,  any  subsequent 
purchases  of  any  of  the  articles  named  above  should  be  charged 
to  the  Household  account,  but  should  not  increase  or  decrease 
the  inventory  figure.  This  last  statement  is  subject  to  modifi- 
cation only  in  case  the  general  scale  of  household  furnishings 
is  raised  materially  as  a  result  of  a  marked  refurnishing  of  the 
house   with   substantially   better  articles. 

The  object  in  advocating  such  a  simple  but  apparently  un- 


APPENDIX 


S89 


scientific  way  of  treating  the  household  inventory  is  based  on 
three  essential  principles  or  facts: 

1.  The  inventory  valuation  of  household  furnishings  does 
not  affect  the  profits  of  the  farm  nor  any  comparisons  made 
among  the  farm  elements.  This  means  that  the  simplest 
method  may  be  used  without  impairing  the  efficiency  of  the 
accounts    through    the    apparently   unscientific    or   inaccurate 

treatment. 

2.  It  is  not  necessary  to  calculate  depreciation  on  house- 
hold furnishings.  Such  a  calculation  and  entry  therefrom 
would  affect  no  other  account.  It  would  mean  merely  a  debit 
and  credit  to  Household  account.  Consequently  the  same  pur- 
pose is  served  by  leaving  the  inventory  entry  the  same  from 
year  to  year.  The  household  receives  approximately  the  same 
benefit  from  the  furnishings  each  year. 

3.  The  total  furnishings  of  all  descriptions  as  enumerated 
are  maintained  at  about  75%  of  their  efficiency  over  a  period 
of  years.  Replacements  from  time  to  time  tend  to  offset 
dishes,  clothes,  carpets,  etc.,  that  have  been  discarded  as  use- 
less. When  such  replacements  are  charged  to  the  Household 
account  from  year  to  year  without  being  credited  in  the  clos- 
ing inventory,  the  result  is  an  annual  cost  of  operating  the 
household  which  may  usually  be  considered  reasonable.  Such 
costs  of  replacement  take  the  place  from  time  to  time  of 
charges  that  might  be  made  for  depreciation.  Seventy-five  per 
cent  efficiency  as  used  above  does  not  mean  that  the  furnish- 
ings could  be  sold  for  75%  of  their  cost  value.  Second-hand 
furnishings  could  seldom  be  sold  for  that  much.  That  per  cent 
represents  their  value  in  use  to  the  farmer's  family. 

Pricing  Commodities  Fed  to  Livestock.— Under  Fictitious 
Profits  it  was  stated  that  the  net  profits  of  the  farm  as  a 
whole  are  not  affected  by  the  price  at  which  commodities  are 
transferred  from  one  department  to  another.  As  a  result  of 
this  fact  it  was  pointed  out  that  a  transfer  of  feed  to  live- 
stock at  market  price  or  more  would  not  create  a  fictitious 
profit  for  the  farm. 

There  remains  to  be  determined  just  what  price  should  be 


(  ■■ 

>'  '' 


n 


ii 


890 


APPENDIX 


used  in  calculating  the  values  of  the  several  crops  fed  to  live- 
stock; and  why  such  price  should  be  used. 

Market  price  of  the  crops  fed  has  been  found,  after  careful 
analysis,  to  be  the  price  that  results  in  showing  the  facts  to 
the  best  advantage,  both  relatively  and  absolutely.  By  mar- 
ket price  is  meant  the  average  market  price  during  a  month. 
As  brought  out  in  the  description  of  the  Feed  Record  in  Chap- 
ter VIII,  the  quantities  of  the  various  grains  and  other  feed 
consumed  by  livestock  are  ascertained  by  estimate  or  actual 
measurement.  At  the  close  of  each  month  the  average  market 
price  of  the  grain  or  feed  is  determined  by  a  perusal  of  the 
market  quotations  of  the  papers.  Such  market  price  is  used 
in  calculating  the  total  values  for  the  feed  record  at  the  close 
of  the  month   (See  Illustrations  49  and  50). 

There  are  several  factors  that  cause  us  to  conclude  that  mar- 
ket price  is  the  most  reasonable  one  to  use  in  crediting  the 
crop  and  debiting  the  livestock  accounts  with  the  commodities 
fed  on  the  farm.  Most  of  the  reasons  are  presented  on  a  com- 
parative basis  with  the  idea  of  showing  why  market  price  is 
better  than  cost  or  than  market  price  minus  cost  of  marketing. 
These  latter  two  bases  are  the  only  other  ones  that  seem  to 
have  any  supporters.  The  reasons  are  divided  into  two  main 
classes,  for  (A)  Livestock  kept  for  profit,  and  (B)  Livestock 
kept  for  work,  as  horses. 

(A)  Livestock  Kept  for  Profit.— The  statement  that  it  *'pays 
better"  to  feed  com  to  hogs  than  to  sell  it  means  that  thcj 
farm  profit  is  greater,  when  taking  all  results  of  farming  opera- 
tions together.  This  cannot  be  construed  as  meaning  that  com 
is  responsible  for  the  increased  profits.  The  increased  profits 
come  as  a  result  of  the  additional  capital,  labor  and  risk  re- 
quired to  keep  a  drove  of  hogs,  in  addition  to  the  raising  of 
the  com  crop. 

The  three  principal  reasons  for  using  market  price  in  valu- 
ing the  crops  fed  to  livestock  that  is  kept  for  profit  may  be 
stated  as  in  (1),  (2)  and  (3)  below: 

(1)  It  permits  of  a  comparison  of  costs  of  raising  livestock 
on  different  farms  in  the  same  year. 

Unit  costs  of  production  of  crops  are  influenced  so  largely 


APPENDIX  391 

by  weather  conditions  that  livestock  costs  in  aiiterent  locali- 
ties  would  be  greatly  influenced  by  crop  failures,  if  cost  price 
were  used.  Cost  of  marketing  is  not  at  all  uniform  through- 
out a  state,  county  or  even  smaller  area.  The  cash  market 
price  is  uniform  throughout  a  very  large  area.  Accordingly, 
a  charge  of  market  price  to  livestock  for  feed  consumed  affords 
a  uniform  element  of  cost  in  livestock  of  a  given  class.  A 
comparison  of  other  costs  of  producing  the  livestock  would 
then  tend  to  indicate  to  some  extent  the  degree  of  efficiency 

in  management. 

Of  course,  it  may  be  said  against  the  market  price,  in  this 
respect,  that  it  does  not  afford  a  good  basis  for  comparison  of 
costs  of  raising  a  given  class  of  livestock  in  two  or  more  suc- 
cessive years  on  the  same  farm.  This  is  because  of  the  fluc- 
tuation of  market  price  of  feeds  from  year  to  year.  However, 
the  same  objection  may  be  made  to  the  cost  price,  since  the 
cost  per  bushel  of  raising  a  crop  may  vary  greatly  from  year 

to  year. 

(2)  Using  market  price  permits  the  crop  account  to  show 
a  profit  commensurate  with  its  nearness  to  market  regardless 
of  whether  it  is  all  fed  or  all  sold,  or  part  fed  and  part  sold. 
If  cost  price  were  used,  and  the  crop  were  all  fed,  it  would 
appear  that  no  profit  was  made  on  the  crop. 

(3)  Market  price  gives  both  the  crop  and  the  livestock  ele- 
ments the  same  advantage  because  of  their  juxtaposition  on 

the  farm. 

As  a  hypothetical  case,  assume  that  a  70-cents  per  bushel 

market  price  of  com  is  made  of  the  following  parts :  * 

Cost  of  producing  and  harvesting $ .  55 

Cost  of  marketing -05 

Net  profit  on  the  crop -^0 

Market  price  per  bushel $-70 

What  becomes  of  the  corn  when  it  is  sold?  The  grain  dealer 
uses  it  to  make  a  profit  for  himself.     This  additional  profit 

*  These  figures  are  taken  merely  for  illustrative  purposes  and  should 
not  be  considered  indicative  of  what  the  figures  ought  to  be  under 
normal  conditions  in  practice. 


w     ■ 

r 


'.j 


392  APPENDIX 

does  not  benefit  the  farmer  in  the  least.  All  that  he  gets  is 
the  10  cents  net  profit  as  shown  in  the  analysis  above.  When 
he  sells  it  to  **Mr.  Hog''  instead  of  to  the  elevator  man,  he 
still  gets  his  10  cents  net  profit  by  selling  it  at  market  pnco 
minus  the  cost  of  marketing,  5  cents.  In  other  words  he  cari 
sell  it  to  ^^Mr.  Hog''  at  65  cents  a  bushel  and  still  make  10 
cents  net  profit  on  the  com  because  of  the  saving  of  the  o 
cents  for  cost  of  marketing. 

He  prefers,  perhaps,  to  sell  it  to  -Mr.  Hog"  because  m 
selling  to  the  elevator  man  he  has  no  opportunity  of  deriving 
a  benefit  from  the  subsequent  transactions  in  which  his  com 
is  interested.  When  he  sells  it  to  -Mr.  Hog,"  he  as  a  bene- 
ficiary expects  to  receive  any  profits  that  may  accrue  as  a 
result  of  -Mr.  Hog's"  subsequent  transactions  with  the  com. 
Thus,  by  paying  65  cents  (market  price  minus  cost  of  mar- 
keting) -Mr.  Hog"  allows  the  farmer  just  as  great  a  profcit 
on  the  com  as  does  the  elevator  man.  In  addition,  he  allows 
the  farmer  the  benefit  of  profits  resulting  from  subsequent  use 

of  the  com.  i.  i.v« 

Assume,  on  the  other  hand,  a  rather  extreme  case,  that  the 
farmer  raises  hogs,  but  buys  all  his  feed  on  the  market-say 
com  only,  for  the  sake  of  simplicity.     In  this  case  the  hogs 
are   charged   with   market   price  ^    plus   the   cost    of   bnnging 
the  com  from  market.     This  is  approximately  equivalent  to 
market  price  plus  the  cost  of  marketing  or  75  cents  (70  plus  5  . 
From  the  foregoing  statements  it  is  apparent  that  10  cents 
a  bushel  more  is  charged  to  hogs  for  feed  when  it  is  bought 
on  the  market  than  when  it  is  bought  from  the  com  cnb  at 
market  price  minus  the   cost   of  marketing.     In   other  words 
while  the  com  is  not  benefited  at  all  the  hogs  are  benefited 
ten   cents  a  bushel  when   com   is  fed  at  market   price  minus 
cost  of  marketing  (65  cents  in  this  case) .  .         ,         , 

Is  this  fair  and  reasonable  that  one  productive  element 
should  receive  all  the  benefit  from   the  juxtaposition   of  two 

Un  this  case  the  market  price  is  not  quite  the  same  as  when  the 
farmer  sells  the  product.  The  term  as  used  here  includes  a  slight 
profit  for  the  dealer.  This  is  ignored  in  the  theoretical  case  at  hand, 
however. 


APPENDIX 


599 


or  more  elements  that  can  and  should  cooperate  for  their 
mutual  benefit?  We  think  not,  as  long  as  each  element  in 
question  is  operated  with  the  view  of  making  as  much  profit 
as  possible. 

As  stated  previously,  it  makes  no  difference  financially  with 
the  farmer  whether  this  apparent  favoritism  exists  or  not.  He 
should  be  interested,  however,  in  seeing  each  element  dealt  with 
fairly. 

A  charge  of  the  corn  to  the  hogs  at  market  price  is  the  way 
to  relieve  the  apparent  favoritism  referred  to  above.  It  also 
results  in  an  even  distribution  of  the  advantage  arising  to  each 
productive  element  because  of  its  juxtaposition  to  the  other. 
This  is  analyzed  in  the  four  possible  cases  below: 

(a)  If  corn  is  sold  on  the  market  at  market  price  it  brings 
65  cents  (70  minus  5  for  marketing),  to  be  used  in  paying  the 
cost  of  55  cents,  leaving  10  cents  net  profit. 

(b)  //  corn  is  sold  to  the  hogs  at  market  price  it  brings  70 
cents  (there  being  no  cost  of  marketing),  to  be  used  in  paying  the 
cost  of  55  cents,  leaving  15  cents  net  profit. 

(c)  If  the  hogs  bug  corn  on  the  market  at  market  price,  they 
pay  75  cents  (70  plus  5  for  bringing  from  market). 

(d)  If  the  hogs  buy  com  from  the  com  crib  on  the  farm  at 
market  price,  they  pay  70  cents  (there  being  no  cost  of  bringing 
from  market). 

By  comparing  (a)  and  (b)  above,  it  is  seen  that  com  makes 
5  cents  a  bushel  more  by  selling  at  market  price  to  the  hogs 
rather  than  on  the  market. 

By  comparing  (c)  and  (d)  above,  it  is  seen  that  the  hogs 
save  5  cents  a  bushel  by  buying  at  market  price  from  the  com 
crib  on  the  farm  rather  than  on  the  market. 

Conclusions :  ^  Conditions  in  other  classes  of  productive  live- 

'The  conclusions  drawn  ignore  any  element  of  storage  of  grain 
on  the  farm.  It  might  be  said  that  the  crop  should  be  credited  with 
more  than  market  price  because  it  is  charged  with  building  expense; 
also  that  the  crop  might  be  sold,  thus  bringing  in  cash  that  could 
draw  interest.  Such  a  statement  does  not  have  much  weight  in  a 
discussion  of  this  sort,  because  market  conditions  are  so  uncertain 
that  the  crop  might  have  been  held  anyway. 


( 


394 


APPENDIX 


ti 


stock  and  farm  crops  are  such  as  to  make  them  applicable  to 
the  conditions  cited  for  hogs  and  corn.  Therefore,  livestock 
raised  for  profit  should  be  charged  with  farm  crops  consumed 
at  market  price  in  order  to  apportion  fairly  the  advantagtis 
caused  by  the  juxtaposition  of  the  productive  elements  on  the 
farm. 

(B)  Livestock  Kept  for  Work. — In  crediting  the  several 
crop  accounts  and  debiting  work  horses  with  the  commoditiets 
fed,  market  price  of  the  commodities  should  be  used.  Thus, 
it  might  be  stated  that  all  entries  for  the  quantities  shown  in 
the  feed  record  should  be  calculated  at  the  market  price  of 
the  crops  concerned,  regardless  of  whether  they  are  fed  to 
livestock  kept  for  profit  or  for  work. 

The  only  reason  for  treating  the  two  classes  of  livestock 
separate  in  this  discussion  is  that  different  principles  govern 
the  use  of  market  price  in  the  two  cases. 

In  the  case  of  horses,  market  price  for  feed  is  supported 
by  the  first  two  reasons  given  under  "Livestock  Kept  for 
Profit"  above,  namely,  to  permit  a  comparison  of  results  with 
other  farms  with  respect  to  the  livestock  and  the  crop.  The 
third  reason  named,  that  of  sharing  the  effect  of  the  juxtapcj- 
sition  of  the  elements  on  the  farm,  does  not  necessarily  apply 
as  between  the  horses  and  the  crops  fed.  It  does  apply,  how- 
ever, as  between  the  crops  that  are  fed  to  horses  and  the  crop'S 
that  are  not. 

For  work  horses,  a  third  reason  for  using  market  price  for 
feed  is  based  on  the  fact  that  some  crops  that  get  the  benefit 
of  horse  labor  do  not  contribute  anything  to  the  upkeep  of 
the  horses.  If  cost  price  were  used  in  valuing  the  crops  fed 
to  horses  the  cost  of  keeping  horses  would  be  less  than  if 
market  price  were  used.  Accordingly,  the  cost  of  horse  labor 
to  be  charged  to  the  farm  elements  would  be  less.  Such  con- 
dition would  permit  the  wheat,  barley  or  other  crops  not 
usually  fed  to  horses  to  share  in  the  benefits  of  the  cheaper 
horse  labor  without  contributing  anything  to  make  such  labor 
cheaper. 

If,  on  a  given  farm,  only  one  crop  were  raised,  it  would 
not  make  any  difference  in  its  net  profit  whether  it  was  fed 


APPENDIX 


395 


-  ' 


at  cost  or  market  price,  provided  any  feed  purchased  was  charged 
at  the  same  price  imder  each  of  the  two  methods. 

In  order  to  present  the  effect  of  feeding  horses  at  cost  and 
market  price  of  farm  crops,  four  assumptions  are  made  under 
the  headings,  Case  I  (a).  Case  I  (b),  Case  II  (a)  and  Case 
II  (b)  respectively,  all  of  which  are  shown  in  Illustration  74. 
Case  I  considers  that  com  is  the  only  crop  on  the  farm. 
Under  (a)  it  is  fed  to  horses  at  cost  price.  Under  (b)  it  is 
fed  at  market  price. 

Case  II  considers  that  corn,  hay  and  wheat  are  raised  on 
the  farm,  corn  and  hay  being  fed  to  horses  while  wheat  is  not. 
Under  (a)  com  and  hay  are  fed  at  cost  price.  Under  (b) 
they  are  fed  at  market  price. 

For  purposes  of  comparison  it  is  assumed  that  market  price 
of  both  corn  and  hay  is  50%  over  cost  price,  that  when  three 
crops  are  raised  the  horse  labor  and  other  expenses  are  divided 
equally  among  them,  that  horses  work  only  on  crops,  and  that 
the  market  price  of  each  of  the  three  products  raised  is  the 
same.  Inventories  of  both  the  horses  and  crops  are  ignored. 
None  of  the  assumptions  named  affect  the  conclusions.  They 
are  made  only  for  the  purpose  of  simplifying  the  comparison, 
A  possible  exception  is  the  assumption  that  horses  work  only 
on  the  crops.  This  assumption  tends  to  decrease  the  profit 
relatively  as  compared  with  the  profit  under  normal  conditions. 

From  an  examination  of  the  accounts  and  Summary  of  Illus- 
tration 74,  it  may  be  seen  that  when  only  one  crop  is  raised 
on  a  farm  and  it  is  all  fed  to  horses  the  net  gain  on  that 
crop  is  the  same  whether  it  is  fed  to  the  horses  at  cost  or 
market  price.  Thus,  Com  shows  a  gain  of  $440  under  either 
method,  as  shown  in  the  Summary  of  Results  and  in  the  ac- 
count under  Cases  I  (a)  and  I  (b). 

It  is  seen  in  Case  II  (a)  that  the  wheat  crop  is  benefited 
considerably  to  the  detriment  of  com  and  hay  when  the  latter 
crops  are  fed  at  cost  price  and  all  other  conditions  are  equal. 
Under  this  case  Com  and  Hay  each  show  a  net  gain  for  the 
year  of  $166.67,  while  Wheat  shows  $216.66. 

In  Case  II  (b)  when  com  and  hay  are  fed  at  market  price, 
they  retum  the  same  net  gain  that  wheat  does,  $183.3a  in  each 


1  '' 


'I     : 


-! 


i 


',f 


396 


APPENDIX 


ILLUSTRATION  74 

Comparative  Effect  on  Net  Profits  of  Crops  When  They 
Are  Fed  to  Horses  at  Cost  and  at  Market  Price 

CASE  I  (a) 

Corn  the  Only  Crop  Raised  on  the  Farm 
Charged  to  Horses  at  Cost  Price 

Horses 


Com  fed  at  cost $100.00 

Other  feed  at  market . .     210 .  00 
Other  upkeep  expenses .     150 .  00 


$460.00 


Horse  Labor  cost,  to 
-Corn $460.00 


$460.00 


Com 


Horse  Labor $460.00 

Other  expenses  of  pro- 
duction, harvestmg, 
etc 800.00 

Net  gain  for  year 440 .  00 


$1,700.00 


Fed  to  horses  at  cost . .  $100 .  00 
Sold  or  fed  to  other  an- 
imals at  market  price  1,600 .  00 


$1,700.00 


APPENDIX 


397 


ILLUSTRATION  74— (Continued) 
CASE  I  (b) 

Corn  the  Only  Crop  Raised  on  the  Farm 
Charged  to  Horses  at  Market  Price 

Horses 


Com  fed  at  market.  .  .  $150.00 
Other  feed  at  market . .  210 .  00 
Other  upkeep  expenses.  150.00 


$510.00 


Horse  Labor  cost,  to 
Com $510.00 


$510.00 


Com 


Horse  Labor $510.00 

Other  expenses  of  pro- 
duction, harvesting, 
etc 800.00 

Net  gain  for  year 440.00 


$1,750.00 


Fed  to  horses  at  mar- 
ket price $150.00 

Sold  or  fed  to  other  an- 
imals at  market  price  1 ,600 .  00 


$1,750.00 


f      : 


!■ 


398 


APPENDIX 


ILLUSTRATION  74— (Continued) 

CASE  II  (a) 

Corn,  Hay  and  Wheat  Raised  on  the  Farm 

Corn  and  Hay  Charged  to  Horses  at  Cost  Price;  Wheat 

Not  Fed,  But  Sold 
Horses 


Com  fed  at  cost $100.00 

Hay  fed  at  Cost 100.00 

Mill  feed  at  market ...     110 .  00 
Other  upkeep  expenses .    1 50 .  00 

$460.00 


Horse  Labor  cost,  to 

Corn $153 . 33 

Hay 153.33 

Wheat 153.34 

$460.00 


Com 


Horse  Labor $153 .33 

Other  expenses  of  pro- 
duction, harvesting, 
etc 250.00 

Net  gain  for  year 166.67 

$570.00 


Fed  to  horses  at  cost  $100. CjO 
Sold  or  fed  to  other  an- 
imals at  market  price    470 .  CO 


$570.00 


Hay 


Horse  Labor $153 .  33 

Other  expenses  of  pro- 
duction, harvesting, 
etc 250.00 

Net  gain  for  year 166.67 

$570.00 


Fed  to  horses  at  cost . .  $100 .  C)0 
Sold  or  fed  to  other  an- 
imals at  market  price    470 .  CK) 


$570.00 


Wheat 


Horse  Labor $153 .  34 

Other  expenses  of  pro- 
duction, harvesting, 
etc 250.00 

Net  Gain  for  the  year .     216.66 

$620.00 


Sold  at  market  price. .  $620. (X) 


$620.00 


APPENDIX 


399 


ILLUSTRATION  74— (Continued) 

CASE  II  (b) 

Corn,  Hay  and  Wheat  Raised  on  the  Farm 

Corn  and  Hay  Charged  to  Horses  at  Market  Price;  Wheat 

Not  Fed,  But  Sold 

Horses 


Corn  fed  at  market  price  $150 .  00 

Horse   Labor 

cost 

to 

Hay  fed  at  market  price    150 .  00 

Corn 

•     •    •    • 

■    •    • 

$186.67 

Mill  feed  at  market  price  1 10 .  00 

Hay 

•    «    •    > 

•    • 

186.67 

Other  upkeep  expenses .    1 50 .  00 

Wheat 

•    • 

186.66 

$560.00 

$560.00 

Com 


Horse  Labor $186 .  67 

Other  expenses  of  pro- 
duction, harvesting, 
etc 250.00 

Net  Gain  for  year 183.33 

$620 . 00 


Fed  to  horses  at  mar- 
ket price $150.00 

Sold  or  fed  to  other  an- 
imals at  market  price    470 .  00 


$620.00 


Hay 


Horse  Labor $186 .  67 

Other  expenses  of  pro- 
duction, harvesting, 
etc 250.00 

Net  gain  for  year 183 .  33 

$620.00 


Fed  to  horses  at  mar- 
ket price.  . $150.00 

Sold  or  fed  to  other  an- 
imals at  market  price    470 .  00 


$620.00 


Wheat 


Horse  Labor $186.66 

Other  expenses  of  pro- 
duction, harvesting, 
etc 250.00 

Net  gain  183.34 

$620.00 


Sold  at  market  price . .  $620 .  00 


$620.00 


yi 


I 


: 


n 


400 


APPENDIX 

ILLUSTRATION  74— (Continued) 
Summary  of  Results 


Crop 


Corn . . 
Hay.. 
Wheat 


Net  Gain  for  Year 


Case  I  (a) 
(at  Cost) 


$440.00 


Total $440.00 


Case  I  (b) 
(at  Market) 


$440.00 


$440.00 


Case  II  (a) 
(at  Cost) 


$166.67 
166.67 
216.66 


$550.00 


Case  II  (b) 
(at  Market) 


$183.33 
183.33 
183.34 


$550.00 


ease.    In  other  words  they  are  not  made  to  pay  for  the  cheap 
horse  labor  performed  on  the  wheat. 

Conclusion:  Farm  crops  fed  to  work  animals  should  be 
charged  at  market  price  during  the  month  in  which  they  are 

fed. 

Pricing  Farm  Products  Consumed  by  Household.— Milk,  eggs, 
mutton,  beef,  pork  or  other  products  consumed  by  the  house- 
hold should  be  charged  at  market  price  less  cost  of  marketing. 
In  this  case,  there  does  not  arise  the  question  of  treating  fairly 
the  productive  elements  on  the  farm.  As  long  as  the  pro- 
ductive elements  are  able  to  transfer  commodities  to  the  house- 
hold at  prices  which  will  result  in  the  same  gain  as  when  sold 
on  the  market,  they  are  receiving  fair  accounting  treatment. 

Under  the  method  suggested  in  Chapter  IX,  the  Household 
is  charged  with  milk  and  e^s  produced,  at  market  price  less 
cost  of  marketing.  If  the  household  sells  any  of  the  eggs  or 
milk  in  the  market  it  would,  then,  make  a  profit  equivalent  to 
the  cost  of  marketing,  if  it  were  not  for  the  fact  that  the 
household  is  charged  with  the  man  and  horse  labor,  and  equip- 
ment used  when  a  man  and  team  goes  to  town  in  the  interests 
of  the  household.  According  to  this  plan,  the  household  does 
not  make  a  profit  on  the  farm  products  sold.  The  charge  at 
time  of  milking  or  gathering  eggs  is  supplemented  later  by  a 


APPENDIX 


401 


charge  for  marketing.     The  sum  of  the  two  charges  is  suffi- 
cient to  balance  the  credit  for  the  sale  at  market  price. 

The  poultry  or  cattle  receive  the  same  net  gain  when  trans- 
ferred to  the  household  at  market  price  less  cost  of  marketing 
that  they  would  if  their  products  were  sold  elsewhere  at  mar- 
ket price,  but  the  cost  of  marketing  was  debited  to  the  poultry 

or  cattle  accounts. 

When  the  garden  is  treated  as  in  Chapter  IX,  the  question 
of  prices  for  garden  truck  does  not  arise. 

Rate  of  Interest  on  Investment.— A  rate  of  4%  a  year  is 
suggested  as  the  most  reasonable  rate  to  use  in  calculating  in- 
terest on  investment  in  land.  It  is  the  most  reasonable  (1), 
because  it  permits  a  fair  rate  of  return  on  capital  for  so 
stable  an  investment,  and  (2),  because  it  is  a  rate  which  will 
result  in  a  fair  comparison  of  results  of  the  farms  operated 
by  owners  and  those  operated  by  tenants. 

Considering  the  first  reason  mentioned,  5%  or  6%  are  more 
often  quoted  as  the  rates  of  return  one  could  expect  if  he 
invested  his  money  elsewhere  than  in  a  farm.  One  might  add 
that,  if  the  farmer  wished,  he  could  sell  his  farm  and  invest 
his  money  in  21/2%  government  bonds  or  in  the  postal  savings 
bank,  either  of  which  is  considered  as  a  standard  of  safety  in 
investment;  or  he  might  invest  in  10%  stock  of  a  corporation, 
whose  dividends  in  the  future  are  somewhat  uncertain,  and 
the  value  of  whose  property  is  questionable. 

In  determining  the  rate  to  charge  for  investment  in  land, 
one  should  consider  the  rate  of  interest  that  could  be  obtained 
if  the  farmer  were  to  sell  his  property  and  invest  in  some- 
thing equally  safe.  The  most  logical  investment  to  consider 
equally  safe,  is  another  farm  in  the  same  vicinity.  Stating 
the  proposition  in  another  way,  then,  the  rate  of  interest  to 
be  charged  by  the  owner  should  be  the  same  as  the  rate  of 
interest  he  would  receive  from  his  farm,  if  he  were  to  move 
away  and  rent  it  to  someone  else.  Four  per  cent  is  fairly  well 
ebtablished  by  investigation  ^  as  being  nearest  to  the  net  annual 
rate  of  return  which  the  average  farmer  does  receive  on  his 
farm  when  he  rents  it  to  a  tenant. 

» U.  S.  Department  of  Agriculture  Bulletin  No.  41. 


11 
II 


I:! 


'If 


Ijl 


>l 


iilli 


402 


APPENDIX 


If  a  landlord  farmer  charges  6%  on  his  investment,  and  his 
neighbor  tenant  charges  rent,  which  amounts  to  4%  or  slightly 
less,  on  the  farm  investment,  it  is  quite  obvious  that  the  cost 
of  production  on  the  farm  operated  by  the  landlord  would 
be  greater  than  on  an  adjoining  farm  operated  by  a  tenant. 
This  would  be  the  result  in  spite  of  the  fact  that  the  two 
farms  were  of  equal  fertility  and  had  similar  topography;  and 
that  the  two  men  were  using  the  same  methods  and  principles 
of  farming. 

This  explains  the  second  reason  stated  for  using  4%  as  tlie 
basis  for  charging  interest  on  investment.  Comparisons  are  vei-y 
valuable.  An  intelligent  comparison  of  results  between  farms 
operated  by  landlords  and  those  operated  by  tenants  would 
not  be  possible  unless  the  charges  for  interest  in  the  one  ca.se 
were  reduced  to  the  same  basis  as  the  charges  for  rent  in  the 
other  case. 

This  principle  of  equality  in  interest  and  rent  charges  is 
recognized  by  some  writers  of  agricultural  bulletins  who  con- 
sider the  6%  interest  rate  as  being  standard  and,  therefore, 
in  the  case  of  tenant  farms,  advocate  an  increase  in  the  charge 
to  the  fields  for  rent  up  to  such  a  figure  as  will  correspond 
to  6%  on  the  investment.  This  method  attempts  to  make  the 
known  quantity  (rent)  agree  with  the  apparently  unknown 
quantity  (interest).  As  stated  above,  rent  is  a  known  quan- 
tity, because  experience  shows  that  over  a  large  area  the  re- 
turn to  the  landlord  in  the  shape  of  rent  amounts  to  about 
4%  on  his  investment. 

It  is  also  maintained,  in  support  of  the  6%  rate,  that  farm- 
ing has  risks,  and  that  any  lower  rate  would  not  compensate 
for  the  risks  involved.  This  statement  confuses  the  term 
**risk  in  operation*'  with  **risk  in  ownership. '*  There  are 
undoubtedly  risks  in  the  operation  of  a  farm,  due  to  weather 
and  market  conditions.  The  risk  in  ownership  of  farm  land 
rented  on  a  cash  basis  is  very  slight,  since  the  income  is  cer- 
tain and  the  land  value  unlikely  to  diminish.  It  is  this  slight 
risk  for  which  the  absentee  landlord  is  compensated  in  the 
form  of  rent.  It  is  this  risk  for  which  the  operating  land- 
lord should  be  compensated  in  the  form  of  interest  on  invest- 


APPENDIX 


403 


ment.  Whatever  he  makes  above  this  4%  is  to  compensate 
him  for  his  risk  in  operation  as  well  as  for  his  ability  as  a 
manager.  Such  risk  of  operation  and  managing  ability  should 
receive  a  just;  reward  in  the  way  of  profit.  Such  profit  would 
be  the  result  of  the  year's  operations  after  charging  4%  in- 
terest on  capital  as  part  of  the  cost  of  production. 

In  order  to  have  one  rate  applicable  to  all  property  on  the 
farm,  the  4%  rate  is  used,  also,  in  connection  with  buildings, 
equipment  and  livestock.  These  cannot  be  supported  logically 
as  being  properly  considered  at  4%,  since  "risk  in  operation" 
and  **risk  in  ownership''  are  almost  synonymous.  However, 
a  charge  to  Building  Expense,  Equipment  Expense  or  an  ap- 
propriate livestock  account  for  insurance  premiums  tends  to 
offset  the  *'risk  in  ownership"  in  many  instances. 

Calculation  of  Wages. — A  Labor  and  Horse  Labor  Conver- 
sion table  is  given  in  Illustration  75  to  assist  in  calculating 
wages.  It  is  especially  valuable  in  figuring  the  value  of  labor 
or  horse  labor  spent  on  various  farm  enterprises.  By  the  use 
of  the  Labor  and  Horse  Labor  Conversion  table  one  can  readily 
find  the  values  that  correspond  to  the  hours  shown  in  the 
yearly  labor  or  horse  labor  summaries.  The  table  is  arranged 
for  showing  the  value  when  the  rate  of  labor  per  hour  and 
the  number  of  hours  are  known.  Any  rate  from  8  cents  to 
30  cents  inclusive  may  be  used  from  this  table.  Any  number 
of  hours  may  be  used  directly  or  indirectly.  The  table  shows 
the  specific  amounts  for  each  hourly  rate  and  for  the  hours 
1  to  10  inclusive;  and  all  multiples  of  ten  up  to  and  including 
500  hours.  From  these  figures  the  value  of  labor  for  almost 
any  number  of  hours  may  be  derived. 

The  conversion  table  is  used  in  the  same  way  for  both  man 
and  horse  labor.  As  a  rule  the  horse  labor  calculations  use 
the  lower  and  the  man  labor  the  higher  hourly  rates. 

Assume  that  the  yearly  labor  summary  shows  that  the  total 
time  spent  in  Field  No.  1  for  the  year  is  450  hours,  and  it  is 
determined  that  the  cost  of  labor  for  the  year  is  22  cents  an 
hour.i  The  value  of  the  labor  to  charge  to  Field  No.  1  account 
under  such  conditions  is  found  to  be  $99.  This  result  is  ob- 
*See  ** Hourly  Cost  of  Labor,"  Chapter  VIII. 


II 


II 


404  APPENDIX 

ILLUSTRATION  75 
Labor  and  Horse  Labor  Conversion  Table 


Rate  Per  Hour  In  Cents 

• 

Hours 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

1 

.08 

.09 

.10 

.11 

.12 

.13 

.14 

.15 

.16 

.17 

.18 

2 

.16 

.18 

.20 

.22 

.24 

.26 

.28 

.30 

.32 

.34 

.36 

3 

.24 

.27 

.30 

.33 

.36 

.39 

.42 

.45 

.48 

.51 

.54 

4 

.32 

.36 

.40 

.44 

.48 

.52 

.56 

.60 

.64 

.68 

.72 

5 

.40 

.45 

.50 

.55 

.60 

.65 

.70 

.75 

.80 

.85 

.90 

6 

.48 

.54 

.60 

.66 

.72 

.78 

.84 

.90 

.96 

1.02 

1.08 

7 

.56 

.63 

.70 

.77 

.84 

.91 

.98 

1.05 

1.12 

1.19 

1.26 

8 

.64 

.72 

.80 

.88 

.96 

1.04 

1.12 

1.20 

1.28 

1.36 

1.44 

9 

.72 

.81 

.90 

.99 

1.08 

1.17 

1.26 

1.35 

1.44 

1.53 

1.62 

10 

.80 

.90 

1.00 

1.10 

1.20 

1.30 

1.40 

1.50 

1.60 

1.70 

1  80 

20 

1.60 

1.80 

2.00 

2.20 

2.40 

2.60 

2.80 

3.00 

3.20 

3.40 

3.60 

30 

2.40 

2.70 

3.00 

3.30 

3.60 

3.90 

4.20 

4.50 

4.80 

5.10 

5.40 

40 

3.20 

3.60 

4.00 

4.40 

4.80 

5.20 

5.60 

6.00 

6.40 

6.80 

7.20 

50 

4.00 

4.50 

5.00 

5.50 

6.00 

6.50 

7.00 

7.50 

8.00 

8.50 

9.00 

60 

4.80 

5.40 

6.00 

6.60 

7.20 

7.80 

8.40 

9.00 

9.60 

10  20 

10.80 

70 

5.60 

6.30 

7.00 

7.70 

8.40 

9.10 

9.80 

10.50 

11.20 

11.90 

12.60 

80 

6.40 

7.20 

8.00 

8.80 

9.60 

10.40 

11.20 

12.00 

12.80 

13.60 

14.40 

90 

7.20 

8.10 

9.00 

9.90 

10.80 

11.70 

12.60 

13.50 

14.40 

15.30 

16.20 

100 

8.00 

9.00 

10.00 

11.00 

12.00 

13.00 

14.00 

15.00 

16.00 

17.00 

18.00 

110 

8.80 

9.90 

11.00 

12.10 

13.20 

14.30 

15.40 

16.50 

17.60 

18.70 

19.80 

120 

9.60 

10.80 

12.00 

13.20 

14.40 

15.60 

16.80 

18.00 

19.20 

20.40 

21.60 

130 

10.40 

11.70 

13.00 

14.30 

15.60 

16.90 

18.20 

19.50 

20.80 

22.10 

23.40 

140 

11.20 

12.60 

14.00 

15.40 

16.80 

18.20 

19.60 

21.00 

22.40 

23.80 

25.20 

150 

12.00 

13.50 

15.00 

16.50 

18.00 

19.50 

21.00 

22.50 

24.00 

25.50 

27.00 

160 

12.80 

14.40 

16.00 

17.60 

19.20 

20.80 

22.40 

24.00 

25.60 

27.20 

28.80 

170 

13.60 

15.30 

17.00 

18.70 

20.40 

22.10 

23.80 

25.50 

27.20 

28  90 

30.60 

180 

14.40 

16.20 

18.00 

19.80 

21.60 

23.40 

25.20 

27.00 

28.80 

30.60 

32.40 

190 

15.20 

17.10 

19.00 

20.90 

22.80 

24.70 

26.60 

28.50 

.30.40 

32.30 

34.20 

200 

16.00 

18.00 

20.00 

22.00 

24.00 

26.00 

28.00 

30.00 

32.00 

34.00 

36.00 

210 

16.80 

18.90 

21.00 

23.10 

25.20 

27.30 

29.40 

31.50 

33.60 

35.70 

37.80 

220 

17.60 

19.80 

22.00 

24.20 

26.40 

28.60 

30.80 

33.00 

35.20 

37.40 

39.60 

230 

18.40 

20.70 

23.00 

25.30 

27.60 

29.90 

32.20 

34.50 

36.80 

39.10 

41.40 

240 

19.20 

21.60 

24.00 

26.40 

2S.80 

31.20 

33 .  60 

36.00 

38.40 

40.80 

43.20 

250 

20.00 

22.50 

25.00 

27.50 

30.00 

32.50 

35.00 

37.50 

40.00 

42.50 

45.00 

200 

20.80 

23.40 

26.00 

28.60 

31.20 

33.80 

36.40 

39.00 

41.60 

44.20 

46.80 

270 

21.60 

21 .  30 

27.00 

29.70 

32.40 

35.10 

37.80 

40.50 

43.20 

45.00 

48.60 

280 

22.40 

2.5.20 

28.00 

30.80 

33.60 

36.40 

39.20 

42.00 

44.80 

47.60 

50.40 

290 

23.20 

26.10 

29.00 

31.90 

34.80 

37.70 

40.60 

43.50 

46.40 

49. 30 

52.20 

300 

24.00 

27.00 

30.00 

33.00 

36.00 

39.00 

42.00 

45.00 

48.00 

51.00 

54.00 

310 

24.80 

27.90 

31.00 

34.10 

37.20 

40.30 

43.40 

46.50 

49.60 

52.70 

55  80 

320 

25.60 

28.80 

32.00 

35.20 

38.40 

41.60 

44.80 

48.00 

51.20 

54.40 

57.60 

330 

26.40 

29.70 

33.00 

36.30 

39.60 

42.90 

46.20 

49.50 

52.80 

56.10 

59.40 

340 

27.20 

30.60 

34.00 

37.40 

40.80 

44.20 

47.60 

51.00 

54.40 

57.80 

61.20 

350 

28.00 

31.50 

35.00 

38.50 

42.00 

45.50 

49.00 

52.50 

56.00 

59.50 

63.00 

360 

28.80 

32.40 

36.00 

39.60 

43.20 

46.80 

50.40 

54.00 

57.60 

61.20 

64.80 

370 

29.60 

31.30 

37.00 

40.70 

44.40 

48.10 

51.80 

55. 50 

59.20 

62.90 

66.60 

380 

30.40 

34.20 

.38.00 

41.80 

45.60 

49.40 

53.20 

57.00 

60.80 

64.60 

68.40 

390 

31.20 

35.10 

39.00 

42.90 

46.80 

50.70 

54.60 

58.50 

62.40 

66.30 

70.20 

400 

32.00 

36.00 

40.00 

44.00 

48.00 

52.00 

56.00 

60.00 

64.00 

68.00 

72.00 

410 

32.80 

36.90 

41.00 

45.10 

49.20 

53.30 

57.40 

61.50 

65.60 

69.70 

73.80 

420 

33.60 

37.80 

42.00 

46.20 

50.40 

54.60 

58.80 

63.00 

67.20 

71.40 

75.60 

430 

34.40 

38.70 

43.00 

47.30 

51.60 

55.90 

60.20 

64.50 

68.80 

73.10 

77.40 

440 

35.20 

39.60 

44.00 

48.40 

52.80 

57.20 

61.60 

66.00 

70.40 

74.80 

79.20 

450 

36.00 

40.50 

45.00 

49.50 

54.00 

58.50 

63.00 

67.50 

72.00 

76.50 

81.00 

460 

36.80 

41.40 

46.00 

50.60 

55.20 

59.80 

64.40 

69.00 

73.60 

78.20 

82.80 

470 

37.60 

42.30 

47.00 

51.70 

56.40 

61.10 

65.80 

70. 50 

75.20 

79.90 

84.60 

480 

38.40 

43.20 

48.00 

52.80 

57.60 

62.40 

67.20 

72.00 

76.80 

81.60 

86.40 

490 

39.20 

44.10 

49  00 

53 .  90 

58.80 

63.70 

68.60 

73.50 

78.40 

83.30 

88.20 

600 

40.00 

45.00 

50.00 

55.00 

60.00 

65.00 

70.00 

75.00 

80.00 

85.00 

90.00 

APPENDIX 


405 


ILLUSTRATION  r^—CorUinved 
Labor  and  Horse  Labor  Conversion  Table — Continued 

Rate  Per  Hour  In  Cents 


19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

29 

30 

.19 

.20 

.21 

.22 

.23 

.24 

.25 

.26 

.27 

.28 

.29 

.30 

.38 

.40 

.42 

.44 

.46 

.48 

.50 

.52 

.64 

.66 

.58 

.60 

.67 

.60 

.63 

.66 

.69 

.72 

.75 

.78 

.81 

.84 

.87 

.90 

.76 

.80 

.84 

.88 

.92 

.96 

1.00 

1.04 

1.08 

1.12 

1.16 

1.20 

.95 

1.00 

1.05 

1.10 

1.15 

1.20 

1.25 

1.30 

1.35 

1.40 

1.45 

1.50 

1.14 

1.20 

1.26 

1.32 

1.38 

1.44 

1.50 

1.56 

1.62 

1.68 

1.74 

1.80 

1.33 

1.40 

1.47 

1.54 

1.61 

1.68 

1.75 

1.82 

1.89 

1.96 

2.03 

2.10 

1.52 

1.60 

1.68 

1.76 

1.84 

1.92 

2.00 

2.08 

2.16 

2.24 

2.32 

2.40 

1.71 

1.80 

1.89 

1.98 

2.07 

2.16 

2.25 

2.34 

2.43 

2.52 

2.61 

2.70 

1.90 

2.00 

2.10 

2.20 

2.30 

2.40 

2.50 

2.60 

2.70 

2.80 

2.90 

3  00 

3.80 

4.00 

4.20 

4.40 

4.60 

4.80 

5.00 

5.20 

6.40 

5.60 

5.80 

6  00 

5.70 

6.00 

6.30 

6.60 

6.90 

7.20 

7.50 

7.80 

8.10 

8.40 

8.70 

9  00 

7.60 

8.00 

8.40 

8.80 

9.20 

9.60 

10.00 

10.40 

10.80 

11.20 

11.60 

12  00 

9.50 

10.00 

10.50 

11.00 

11.50 

12.00 

12.50 

13.00 

13.50 

14.00 

14.50 

15.00 

11.40 

12. OC 

12.60 

13.20 

13.80 

14.40 

15.00 

15.60 

16.20 

16.80 

17.40 

18.00 

13.30 

14.00 

14.70 

15.40 

16.10 

16.80 

17.50 

18.20 

18.90 

19.60 

20.30 

21.00 

15.20 

16.00 

16.80 

17.60 

18.40 

19.20 

20.00 

20.80 

21.60 

22.40 

23.20 

24.00 

17.10 

18.00 

18.90 

19.80 

20.70 

21.60 

22.50 

23.40 

24.30 

25.20 

26.10 

27.00 

19.00 

20.00 

21.00 

22.00 

23.00 

24.00 

25.00 

26.00 

27.00 

28.00 

29.00 

30.00 

20.90 

22.00 

23.10 

24.20 

25.30 

26.40 

27.50 

28.60 

29.70 

30.80 

31.90 

33. 00 

22.80 

24.00 

25.20 

26.40 

27.60 

28.80 

30.00 

31.20 

32.40 

33.60 

34.80 

36.00 

24.70 

26.00 

27.30 

28.60 

29.90 

31.20 

32.50 

33.80 

35.10 

36.40 

37.70 

39.00 

26.60 

28.00 

29.40 

30.80 

32.20 

33.60 

35.00 

36.40 

37.80 

39.20 

40.60 

42.00 

2P.50 

30.00 

31.50 

33.00 

34.50 

36.00 

37.50 

39.00 

40.60 

42.00 

43.60 

46.00 

30.40 

32.00 

33.60 

35.20 

36.80 

38.40 

40.00 

41.60 

43.20 

44.80 

46.40 

48.00 

32.30 

34.00 

35.70 

37.40 

39.10 

40.80 

42.50 

44.20 

45.90 

47.60 

49.30 

51.00 

34.20 

36.00 

37.80 

39.60 

41.49 

43.20 

45.00 

46.80 

48.60 

50.40 

52.20 

54  00 

36.10 

38.00 

39.90 

41.80 

43.70 

45.60 

47.50 

49^.40 

51.30 

53.20 

55.10 

57.00 

38.00 

40.00 

42.00 

44.00 

46.00 

48.00 

50.00 

52.00 

54.00 

56.00 

58.00 

60.00 

39.90 

42.00 

44.10 

46.20 

48.30 

50.40 

52.50 

54.60 

56.70 

68.80 

60.90 

63.00 

41.80 

44.00 

46.20 

48.40 

50.60 

52.80 

55.00 

57.20 

59.40 

61.60 

63.80 

66.00 

43.70 

46.00 

48.30 

50.60 

62.90 

55.20 

57.50 

59.80 

62.10 

64.40 

66.70 

69.00 

45.60 

48.00 

50.40 

52.80 

55.20 

57.60 

60.00 

62.40 

64.80 

67.20 

69.60 

72.00 

47.50 

50.00 

52.50 

55.00 

57.50 

60.00 

62.50 

65.00 

67.60 

70.00 

72.60 

75.00 

49.40 

52.00 

54.60 

57.20 

59.80 

62.40 

65.00 

67.60 

70.20 

72.80 

76.40 

78.00 

51.30 

54.00 

56.70 

59.40 

62.10 

64.80 

67.50 

70.20 

72.90 

75.60 

78.30 

81.00 

63.20 

56.00 

58.80 

61.60 

64.40 

67.20 

70.00 

72.80 

75.60 

78.40 

81.20 

84.00 

65.10 

58.00 

60.90 

63.80 

66.70 

69.60 

72.50 

75.40 

78.. 30 

81.20 

84.10 

87.00 

67.00 

60.00 

63.00 

66.00 

69.00 

72.00 

75.00 

78.00 

81.00 

84.00 

87.00 

90.00 

68.90 

62.00 

65.10 

68.20 

71.30 

74.40 

77.50 

80.60 

83.70 

86.80 

89.90 

93.00 

60.80 

64.00 

67.20 

70.40 

73.60 

76.80 

80.00 

83.20 

86.40 

89.60 

92.80 

96.00 

62.70 

66.00 

69.30 

72.60 

75.90 

79.20 

82.50 

85.80 

89.10 

92.40 

95.70 

99.00 

64.60 

68.00 

71.40 

74.80 

78.20 

81.60 

85.00 

88.40 

91.80 

95.20 

98.60 

102.00 

66.50 

70.00 

73.50 

77.00 

80.50 

84.00 

87.60 

91.90 

94.50 

98.00 

101.50 

105.00 

68.40 

72.00 

75.60 

79.20 

82.80 

86.40 

90.00 

93.60 

97.20 

100.80 

104.40 

108.00 

70.30 

74.00 

77.70 

81.40 

85.10 

88.80 

92.50 

96.20 

99.90 

103.60 

107.30 

111.00 

72.20 

76.00 

79.80 

83.60 

87.40 

91.20 

95.00 

98.80 

102 . 60 

106.40 

110.20 

114.00 

74.10 

78.00 

81.90 

85.80 

89.70 

93.60 

97.50 

101.40 

105.30 

109.20 

113.10 

117.00 

76.00 

80.00 

84.00 

88.00 

92.00 

96.00 

100.00 

104.00 

108.00 

112.00 

116.00 

120.00 

77.90 

82.00 

86.10 

90.20 

94.30 

98.40 

102.50 

106.60 

110.70 

114.80 

118.90 

123.00 

79.80 

84.00 

88.20 

92.40 

90.60 

100.80 

105.00 

109.20 

113.40 

117.60 

121.80 

126.00 

81.70 

86.00 

90.30 

94.60 

98.90 

103.20 

107.50 

111.80 

116.10 

120.40 

124.70 

129.00 

83.60 

88.00 

92.40 

96.80 

101.20 

105.60 

110.00 

114.40 

118.80 

123.20 

127.60 

132.00 

85.50 

90.00 

94.50 

99.00 

103.50 

108.00 

112.60 

117.00 

121.50 

126.00 

130.50 

135.00 

87.40 

92.00 

96.60 

101.20 

105.80 

110.40 

115.00 

119.60 

124.20 

128.80 

133.40 

138.00 

89.30 

94.00 

98.70 

103.40 

108.10 

112.80 

117.50 

122.20 

126.90 

131.60 

136.30 

141.00 

91.20 

96.00 

100.80 

105.60 

110.40 

115.20 

120.00 

124.80 

129.60 

134.40 

139.20 

144  00 

93.10 

98.00 

102.90 

107.80 

112.70 

117.60 

122.50 

127.40 

132.30 

137.20 

142.10 

147.00 

95.00 

100.00 

105.00 

110.00 

115.00 

120.00 

126.00 

130.00 

135.00 

140.00  145.00 

150.00 

I* 


( 


t 


406 


APPENDIX 


tained  by  looking  in  the  column  headed  $.22  on  the  horizontal 
line  opposite  450  hours.  If  the  number  of  hours  on  Field  No.  2 
is  456,  an  additional  calculation  is  necessary,  since  the  table 
does  not  show  a  specific  value  for  any  hours  between  450  and 
460.  In  order  to  find  the  value  of  456  hours  at  22  cents,  it  is 
necessary  to  find  the  value  of  450  hours  and  add  to  it  the 
value  of  6  hours,  thus : 

450  hours  at  22  cents,  per  table $99.00 

6  hours  at  22  cents,  per  table 1 .32 


456  hours  at  22  cents  for  Field  No.  2. . .  $100.32 

For  any  number  of  hours  over  500,  the  calculation  may  be 
obtained  similarly  by  adding  the  value  for  500  hours  to  some 
other  value  shown  in  the  table,  as  the  occasion  demands. 

Feed  Becord  Calculations. — ^A  feed  record  has  very  few  types 
of  product  to  consider  as  compared  with  the  number  of  farm 
elements  to  be  considered  in  a  labor  record.  Accordingly, 
a  Conversion  table  for  recording  values  of  the  feed  consumed 
by  animals  is  not  of  much  assistance.^  The  prices  of  the 
products  vary  to  such  an  extent  that  such  a  table  would  be  so  large 
as  to  become  unwieldy.  A  table  is  presented  below,  however, 
which  is  designed  to  assist  in  calculating  the  number  of  bushels 
of  a  product  in  a  given  number  of  pounds.  That  is,  for  in- 
stance, if  a  notation  of  feedings  is  made  in  pounds  during  a 
month,  and  it  is  desired  to  reduce  the  figure  to  bushels  before 
applying  the  average  market  price  of  the  product,  the  Feed 
Conversion  table  of  Illustration  76  is  used.  The  table  can 
also  be  used  in  connection  with  the  sale  of  any  of  the  ordinary 
farm  products,  as  it  affords  a  quick  and  accurate  means  of 
finding  the  number  of  bushels  in  a  load  when  the  weight  in 
pounds  is  given.  The  results  are  so  tabulated  that  they  can 
be  determined  with  equal  rapidity  for  a  product  weighing  32, 
48,  56,  60  or  70  pounds  to  the  bushel. 

In  the  Feed  Conversion  Table  of  Illustration  76  all  of  the 
possible  weights  are  not  given  in   detail.     A  sufficient  num- 
ber are  given,  however,  so  that  almost  any  weight  in  pounds 
*See  **Feed  Eecord,'*  Chapter  VIII. 


APPENDIX 


407 


ILLUSTRATION  76 

Feed  Conversion  Table 

(showing  number  op  bushels  in  a  given  number  op  pounds 

OF  various  products) 


Shelled 

Wheat, 

Com,  Rye, 

Clover  Seed, 

Oats 

Barley 

Flaxseed, 
Etc. 

Beans,  Peas, 
Potatoes 

Ear  Com 

Pounds 

(321bs.perbu.) 

(48Ib8.perbu.) 

(561b8.perbu.) 

(601bs.perbu.) 

(TOlbs.perbu.) 

Bu. 

Lba. 

Bu. 

Lbs. 

Bu. 

Lbs. 

Bu. 

Lbs. 

Bu. 

Lbs. 

1 

1 

1 

1 

1 

1 

2 

2 

2 

2 

2 

2 

4 

4 

4 

4 

4 

4 

6 

6 

6 

6 

6 

6 

8 

8 

8 

8 

.. 

8 

8 

10 

10 

10 

10 

10 

10 

20 

20 

20 

20 

20 

20 

30 

30 

30 

30 

30 

30 

40 

1 

8 

40 

40 

40 

40 

50 

1 

18 

1 

2 

50 

50 

50 

60 

1 

28 

I 

12 

4 

00 

60 

70 

2 

6 

1 

22 

14 

10 

00 

80 

2 

16 

1 

32 

24 

20 

i 

10 

go 

2 

26 

1 

42 

34 

1 

30 

20 

100 

3 

4 

2 

4 

44 

40 

30 

110 

3 

14 

2 

14 

1 

54 

1 

50 

I 

00 
40 

120 

3 

24 

2 

24 

2 

8 

2 

00 

1 

50 

130 

4 

2 

2 

34 

2 

18 

2 

10 

60 

140 

4 

12 

2 

44 

2 

28 

2 

20 

2 

00 

150 

4 

22 

3 

6 

2 

.38 

2 

30 

2 

10 

160 

5 

00 

3 

16 

2 

48 

2 

40 

2 

20 

170 

5 

10 

3 

26 

3 

.  2 

2 

50 

2 

30 

180 

5 

20 

3 

36 

3 

12 

3 

00 

2 

40 

190 

5 

30 

3 

46 

3 

22 

3 

10 

2 

50 

200 

6 

8 

4 

8 

3 

32 

3 

20 

2 

60 

210 

6 

18 

4 

18 

3 

42 

3 

30 

3 

00 

220 

6 

28 

4 

28 

3 

52 

3 

40 

3 

10 

230 

7 

6 

4 

38 

4 

6 

3 

50 

3 

20 

240 

7 

16 

5 

00 

4 

16 

4 

00 

3 

30 

250 

7 

26 

5 

10 

4 

26 

4 

10 

3 

40 

260 

8 

4. 

5 

20 

4 

36 

4 

20 

3 

50 

270 

8 

14 

5 

30 

4 

46 

4 

30 

3 

60 

280 

8 

24 

5 

40 

6 

00 

4 

40 

4 

00 

290 

9 

2 

6 

2 

5 

10 

4 

50 

4 

10 

300 

9 

12 

6 

12 

5 

20 

5 

00 

4 

20 

310 

9 

22 

6 

22 

5 

30 

5 

10 

4 

30 

320 

10 

00 

6 

32 

6 

40 

5 

20 

4 

40 

330 

10 

10 

6 

42 

5 

50 

5 

30 

4 

50 

340 

10 

20 

7 

4 

6 

4 

5 

40 

4 

60 

350 

10 

30 

7 

14 

6 

14 

5 

50 

5 

00 

360 

11 

8 

7 

24 

6 

24 

6 

00 

5 

10 

370 

11 

18 

7 

34 

6 

34 

6 

10 

5 

20 

380 

11 

28 

7 

44 

6 

44 

6 

20 

5 

30 

390 

12 

6 

8 

6 

6 

54 

6 

30 

5 

40 

400 

12 

16 

8 

16 

7 

8 

6 

40 

5 

50 

!'  1 


j' 


408 


APPENDIX 

ILLUSTRATION  76—C(miinued 
Feed  Conversion  Table — Continued 


ilii 


SheUed 

Wheat, 

Corn,  Rye. 

Clover  Seed, 

Oat8    1 

Barley   I 

Flaxseed, 

Beans,  Peas, 

Ear  Com 

Etc. 

Potatoes 

Poiinds 

(321b8.perbu.) 

(481b8.] 

perbu.) 

(561bs.perbu.) 

(eOlbs.perbu.) 

(701bs.perbu.) 

Bu. 

Lbs. 

Bu. 

Lba. 

Bu. 

Lbs. 

Bu. 

Lbs. 

Bu. 

Lbs. 

410 

12 

26 

8 

26 

7 

18 

6 

50 

5 

60 

420 

13 

4 

8 

36 

7 

28 

7 

00 

6 

00 

430 

13 

14 

8 

46 

7 

38 

7 

10 

6 

10 

440 

13 

24 

9 

8 

7 

48 

7 

20 

6 

20 

450 

14 

2 

9 

18 

8 

2 

7 

30 

6 

30 

460 

14 

12 

9 

28 

8 

12 

7 

40 

6 

40 

470 

14 

X  A4 

22 

9 

38 

8 

22 

7 

50 

6 

50 

480 

15 

00 

10 

00 

8 

32 

8 

00 

6 

60 

490 

15 

10 

10 

10 

8 

42 

8 

10 

7 

00 

500 

15 

20 

10 

20 

8 

52 

8 

20 

7 

10 

600 

18 

24 

12 

24 

10 

40 

10 

00 

8 

40 

700 

21 

28 

14 

28 

12 

28 

11 

40 

10 

00 

800 

25 

00 

16 

32 

14 

16 

13 

20 

11 

30 

900 

28 

4 

18 

36 

16 

4 

15 

00 

12 

60 

1,000 

31 

8 

20 

40 

17 

48 

16 

40 

14 

20 

1.100 

34 

12 

22 

44 

19 

36 

18 

20 

15 

50 

1.200 

37 

16 

25 

00 

21 

24 

20 

00 

17 

10 

1,300 

40 

20 

27 

4 

23 

12 

21 

40 

18 

40 

1.400 

43 

24 

29 

8 

25 

00 

23 

20 

20 

00 

1,500 

46 

28 

31 

12 

26 

44 

25 

00 

21 

30 

1,600 

50 

00 

33 

16 

28 

32 

26 

40 

22 

60 

1,700 

53 

4 

35 

20 

30 

20 

28 

20 

24 

20 

1.800 

56 

8 

37 

24 

32 

8 

30 

00 

25 

50 

1,900 

59 

12 

39 

28 

33 

52 

31 

40 

27 

10 

2,000 

62 

16 

41 

32 

35 

40 

33 

20 

28 

40 

2,100 

65 

20 

43 

36 

37 

28 

35 

00 

30 

00 

2,200 

68 

24 

45 

40 

39 

16 

36 

40 

31 

30 

2.300 

71 

28 

47 

44 

41 

4 

38 

20 

32 

60 

2.400 

75 

■  00 

50 

00 

42 

48 

40 

00 

34 

20 

2.500 

78 

4 

52 

4 

44 

36 

41 

40 

35 

50 

2,600 

81 

8 

54 

8 

46 

24 

43 

20 

37 

10 

2,700 

84 

12 

56 

12 

48 

12 

45 

00 

38 

40 

2,800 

87 

16 

58 

16 

50 

00 

46 

40 

40 

00 

2,900 

90 

20 

60 

20 

51 

44 

48 

20 

41 

30 

3,000 

93 

24 

62 

24 

53 

32 

50 

00 

42 

60 

4,000 

125 

00 

83 

16 

71 

24 

66 

40 

57 

10 

5,000 

156 

8 

104 

8 

89 

16 

83 

20 

71 

30 

6,000 

187 

16 

125 

00 

107 

8 

100 

00 

85 

50 

7,000 

218 

24 

145 

40 

125 

00 

116 

40 

100 

00 

8,000 

250 

00 

166 

32 

142 

48 

133 

20 

114 

20 

9,000 

281 

8 

187 

24 

160 

40 

150 

00 

128 

40 

10,000 

312 

16 

208 

16 

178 

32 

166 

40 

142 

60 

20.000 

625 

00 

416 

32 

357 

8 

333 

20 

285 

50 

30,000 

937 

16 

625 

00 

535 

40 

500 

00 

428 

40 

40,000 

1250 

00 

833 

16 

714 

16 

666 

40 

571 

30 

50.000 

1562 

16 

1041 

32 

892 

48 

833 

20 

714 

20 

60,000 

1875 

00 

1250 

00 

1071 

24 

1000 

00 

857 

10 

70,000 

2187 

16 

1458 

16 

1250 

00 

1166 

40 

1000 

00 

80,000 

2500 

00 

1666 

32 

1428 

32 

1333 

20 

1142 

60 

90,000 

2812 

16 

1875 

00 

1607 

8 

1500 

00 

1285 

50 

100.000 

3125 

00 

2083 

16 

1785 

40 

1666  '  40 

1428 

40 

APPENDIX 


409 


up  to  100,000  can  be  changed  to  bushels  by  selecting  the  proper 
figure  in  the  table  or  by  merely  adding  two  %ures  together. 
A  few  examples  may  tend  to  assist  in  the  use  of  the  table. 

Example 

It  is  found  that  1000  pounds  of  ear  com  have  been  fed  to 
the  swine  during  a  given  month,  valued  at  $1.10  a  bushel. 
What  is  the  total  value? 

Solution 

1000  pounds  of  ear  corn  is  14  bu.*  20  pounds.  14  bu.  20 
pounds  at  $1.10  per  bushel  =  $15.71. 

The  Feed  Conversion  Table  assists  in  the  solution  given 
above  by  supplying  the  14  bu.  20  pounds  as  being  the  number 
of  bushels  of  ear  corn  in  1000  pounds.  The  14  bu.  20  pounds 
are  found  in  the  last  column  under  "Ear  Com  (70  lbs.  per 
bu.),"  opposite  the  1000  which  is  in  the  first  or  "Pounds"  column. 

Example 

The  feed  record  shows  1200  pounds  of  oats  fed  to  horses 
at  $.60  a  bushel  in  November.    What  is  the  total  value? 

Solution 

1,200  lbs.  oats  is  37  bu.  16  lbs. 

37  bu.  16  lbs.  at  $ .  60  per  bu.  =  $22 .  50 

The  Conversion  Table  shows  that  1200  pounds  of  oats  is 
equivalent  to  37  bu.  16  lbs.,  or  37^  bu. 

Example 

Mr.  Myers  has  25,410  pounds  of  oats  weighed  for  sale.  How 
much  will  he  receive  for  them  at  55  cents  a  bushel? 

*In  the  feed  record  it  is  necessary  to  consider  grain  only  to  the 
nearest  bushel  when  the  total  for  a  month  or  year  is  taken. 


410 


APPENDIX 


Solviion 

20,000  lbs.  of  oats  is  625  bu. 
5,000  lbs.  of  oats  is  156  bu.    8  lbs. 
410  lbs.  of  oats  is    12  bu.  26  lbs. 


25,410  lbs.  of  oats  is  793  bu.  34  lbs. 

or  794  bu.     2  lbs. 


794  bu.  2  lbs.     @  55  cents  a  bushel  is  $436.73. 

Since  the  Feed  Conversion  Table  does  not  show  directly  the 
number  of  bushels  in  25,410  lbs.,  it  is  necessary  to  add  to- 
gether the  number  of  bushels  in  20,000  lbs.,  5000  lbs.  and  410 
lbs.  respectively,  each  of  which  is  shown  in  the  first  column 
of  the  table. 


, 


11 


I 


\k 


BIBLIOGRAPHY 

The  following  list  of  books  and  bulletins  on  farm  account- 
ing and  allied  subjects  is  given  for  reference.  The  list  is  by 
no  means  an  exhaustive  one  in  any  subject,  many  other  very 
good  authorities  having  been  omitted.  This  is  especially  true 
in  the  Commercial  and  Manufacturing  Accounting  and  Cost  Ac- 
counting books. 

The  list  is  intended  as  a  guide  in  collateral  reading.  Al- 
though many  of  the  books  and  bulletins  have  been  examined 
and  aid  secured  therefrom  in  the  preparation  of  this  volume, 
the  presence  of  a  publication  in  the  list  does  not  necessarily 
mean  that  it  has  been  of  service  to  the  author.  Likewise  a 
knowledge  obtained  from  advanced  books  in  accountancy, 
mathematics,  law  and  economics  has  been  used,  but  such  books 
are  not  considered  in  the  bibliography  following: 


Commercial  and  Manufacturing  Accounting 

Elementary  Manuals 

Accounts  and  Accounting  Practice — A.  G.  Belding.     American 

Book  Co.— 1915. 
Bookkeeping — Miner.     Ginn  &   Co. — 1912. 
Bookkeeping  and  Accounting — J.  J.  Klein.    D.  Appleton  &  Co. — 

1917. 

Intermediate 

Elements  of  Accounting — J.  J.  Klein.     D.  Appleton  &  Co. — 

1915. 
Modem  Accounting — Hatfield.    D.  Appleton  &  Co. 
Accounting  Theory  &  Practice — R.  B.  Kester.     Ronald  Press 

Co.— 1917. 

411 


41S 


BIBLIOGRAPHY 


BIBLIOGRAPHY 


413 


i\ 


:i  ; 


1« 


r 


Principles  of  Accounting— Gilman.  LaSalle  Extension  Univer- 
sity—1916. 

Cost  AccouNTiNa 

Cost  Accounting  for  Manufacturers — H.  M.  Rowe.  The  H.  M. 
.Rowe  Co.— 1911. 

Cost  Accounting— J.  W.  Baker.  South  Western  Publishing 
Co.— 1913. 

Principles  of  Cost  Accounting— J.  R.  Wildman.  New  York 
University  Press  Co. — 1914. 

Cost  Accounting  and  Burden  Application — Scovell.  D.  Apple- 
ton  &  Co.— 1917. 

Farm  Accounting 

A  System  of  Farm  Cost  Accounting.     U.  S.  Dept.  of  Agric. 

1914— Bulletin  572. 
A  System  of  Accounting  for  Cooperative  Fruit  Associations. 

U.  S.  Dept.  of  Agric.     1915— Bulletin  225. 
Farm   Bookkeeping.     U.   S.   Dept.   of   Agric.     1912— Bulletin 

511. 
Farm  Records  and  Accounts.     Montana  Agricultural  College. 

1915— Circular  43. 
Household  Accounting — Sheaffer.    The  Macmillan  Co. — 1917. 
Business  Practice  and  Accounts  for  Cooperative  Stores.    U.  S. 

Dept.  of  Agric.    1916— Bulletin  381. 
Principles   of   Bookkeeping   and    Farm    Accounts — Bexell    and 

Nichols.    American  Book  Co. — 1913. 
Farm  Accounting  for  the  Practical  Farmer — Goodyear.    Good- 
year-Marshall  Publishing  Co. — ^1911. 

Organization  and  Management 

Farm  Management — G.  F.  Warren.    The  Macmillan  Co. — ^1913. 
Farm   Management — ^F.  W.   Card.     Doubleday,   Page  &   Co.— 

1912. 
Organization  of  Agriculture— Ed  Pratt.    Dutton,  N.  Y.— 1904. 
Farm  Management — Andrew  Bass.    Lyons  &  Camahan — ^1914. 


An   Example   of   Successful   Farm   Management   in   Southern 

New  York.    U.  S.  Dept.  of  Agric.    1913— Bulletin  32. 
What  is  Farm  Management?    U.  S.  Dept;  of  Agric.     1912— 

Bulletin  259. 
A  Normal  Day's  Work  for  Various  Farm  Operations.     U.  S. 

Dept.  of  Agric.     1913— Bulletin  3. 
How  a  City  Family  Managed  a  Farm.     U.  S.  Dept.  of  Agric. 

1911— Farmer's  Bulletin  432. 
A  Method  of  Analyzing  the  Farm  Business.     U.  S.  Dept.  of 

Agric.     1915 — Farmers'  Bulletin  661. 
Systems  of  Farming  in  Central  New  Jersey.    U.  S.  Dept.  of 

Agric.     1911— Bulletin  472. 
A  Farm  Management  Survey  of  Three  Representative  Areas 

in  Indiana,   Illinois  and  Iowa.     U.   S.  Dept.  of  Agric. 

1914r-Bulletin  41. 
Profits  in  Farming  on  Irrigated  Areas  in  Utah  Lake  Valley. 

U.  S.  Dept.  of  Agric.     1914— Bulletin  117. 
An  Agricultural  Survey  of  Farms  in  Tompkins  County,  New 

York.     Cornell  University.     1911— Bulletin  295. 
Economics  of  Apple  Orcharding— Oregon  Agricultural  College. 

1915— Station  Bulletin  132. 

Agricultural  Economics 

Agricultural   Economics— H.  C.  Taylor.     The  Macmillan  Co.— 

1912. 
Principles  of  Rural  Economics— T.  N.  Carver.     Ginn  &  Co.— 

1911. 
Agricultural  Economics— E.  G.  Nourse.    University  of  Chicago 

Press— 1916. 

Selected  Readings  in  Rural  Economics— T.  N.  Carver.  Ginn 
&  Co.— 1916. 

The  Place  of  Economics  in  Agricultural  Education  and  Re- 
search. University  of  Wisconsin.  1911— Research  Bul- 
letin 16. 

Finance  and  Ceiedit 

Principles  of  Rural  Credits— James  B.  Morman.  The  Mac- 
millan Co.— 1915. 


414 


BIBLIOGRAPHY 


I 


Ir 


Rural  Credits,  Land  and  Cooperative — M.  T.  Herrick  and  R. 
Ingals.     D.  Appleton  &  Co. — 1914. 

The  Federal  Loan  System — Herbert  Myrick.  Orange  Judd  Co. 
—1917. 

Costs  and  Sources  of  Farm  Mortgage  Loans  in  tbe  United 
States.     U.  S.  Dept*  of  Agric.     1916— Bulletin  384. 

Factors  affecting  Interest  Rates  and  other  charges  on  short 
time  Farm  Loans.  U.  S.  Dept.  of  Agric.  1916 — ^Bulle- 
tin 409. 

How  to  Use  Farm  Credit.  U.  S.  Dept.  of  Agric.  1914— Bulle- 
tin 593. 

Farm  Credit  in  Wisconsin.  University  of  Wisconsin.  1915 — 
Bulletin  247. 

How  farmers  may  improve  their  personal  credit.  U.  S.  Dept.  of 
Agric.  1915— Bulletin  654. 

Amortization  Methods  for  Farm  Mortgage  Loans.  U.  S.  Dept. 
of  Agric. — Circular  60. 

Farm   Production   and   Costs 

Cost  of  Producing  Farm  Crops.    North  Dakota  Agric.  College. 

1913— Bulletin  104. 
Distribution  of  Farm  Labor.    University  of  Missouri.    1913 — 

Research  Bulletin  6. 
The   Cost  of  Production   on   Missouri  Farms.     University  of 

Missouri.     1915— Bulletin  125. 
The  Cost  of  Producing  Minnesota  Farm  Products.    University 

of  Minnesota.     1908-1912— Bulletin  145. 
The  Cost  of  Horse  Labor.     University  of  Minnesota.     1911 — 

Extension  Bulletin  15. 
Crop  Yields  and  Prices  and  Our  Future  Food  Supply.     Cornell 

University.     1914— Bulletin  341. 
Milk  Required  to  Raise  a  Dairy  Calf.     University  of  Illinois. 

1913— Bulletin  164. 
Cost  of  Raising  a  Dairy  Cow.    U.  S.  Dept.  of  Agric.    1914^ 

Bulletin  49. 
Cost  of  Fencing  Farms  in  the  North  Central  States.     U.  S. 

Dept.  of  Agric.    191&— Bulletin  321. 


BIBLIOGRAPHY 


415 


Farm  Experience   with   the   Tractor.     U.   S.  Dept.   of  Agric. 

1915— Bulletin  174. 
Cost  and  Methods  of  Clearing  Land  in  the  Lake  States.     U.  S. 

Dept.  of  Agric.     1914— Bulletin  91. 
Machinery  Costs  of  Farm  Operations  in  Western  New  York. 

U.  S.  Dept.  of  Agric.     1916— Bulletin  338. 
Cost  of  Production  in  the  Great  Plains  Area.    U.  S.  Dept.  of 

Agric.     1915— Bulletin  268. 
Operating    Costs    of    a    Well    Established    New    York    Apple 

Orchard.     U.  S.  Dept.  of  Agric.     1914— Bulletin  130. 
Crew  Work  Costs  and  Returns  in  Commercial  Orcharding  in 

West   Virginia.     U.    S.   Dept.   of  Agric.     1913— Bulle- 
tin 29. 

Marketing  and  Selling 

Cooperation  in  Agriculture— G.  H.  Powell.  The  Macmillan 
Co.— 1914. 

The  Marketing  of  Farm  Products— L.  D.  H.  Weld.  The  Mac- 
millan  Co.— 1916. 

Agricultural  Commerce — G.  G.  Huebner.  D.  Appleton  &  Co. — 
1915. 

Markets  and  Rural  Economics — T.  J.  Brooks.  The  Shakes- 
peare Press — 1914. 

Outlets  and  Methods  of  Sale  for  Shippers  of  Fruits  and  Vege- 
tables.   U.  S.  Dept.  of  Agric.    1915— Bulletin  266. 

Methods  of  Wholesale  Distribution  of  Fruits  and  Vegetables 
on  Large  Markets.  U.  S.  Dept.  of  Agric.  1915 — Bulle- 
tin 267. 

Cooperative  Organization  Business  Methods.  U.  S.  Dept.  of 
Agric.     1915— Bulletin  178. 

Suggestions  for  Parcel  Post  Marketing.  U.  S.  Dept.  of  Agric. 
1916— Bulletin  703. 

Miscellaneous 

Law  for  the  American  Farmer — J.  B.  Green.     The  Macmillan 

Co.— 1911. 
Business  Arithmetic — C.  M.  Bookman.     American  Book  Co. — 

1914. 


416 


BIBLIOGRAPHY 


The  Commercial  Arithmetic — A.  E.  Baker.    Metroi)olitan  Text 

Book  Co.— 1911. 
What  the  Farm   Contributes  Directly  to  the  Farmer's  Living. 

U.  S.  Dept.  of  Agric.     1914— Bulletin  635. 
Minor  Items  of  Farm  Equipment.     Ohio  Agric.  Experimental 

Station — Circular  98. 
The  Prices  of  Farm  Products.    University  of  Wisconsin.    1911 

—Bulletin  209. 


INDEX 


•    Abbreviated  entries,  97 
Accounting. 

bibliography,  411 
defined,  1 

guide  to  management,  371 
reasons  for,  3 
Accounts,,  analysis   and   illustra- 
tion of,  20,  21,   23,  40,  41, 
44,  49,  67,  91,  95,  100,  136, 
180,  181,  193,  250,  251,  269, 
270,  306,  331,  347,  351,  352, 
367 
classification  of,  54.    (See  ''on 

account.*' ) 
closing,  48,  57 
defined,  18 

in  balance,  30,  50,  54 
no  subtractions  in,  26 
Accounts  Receivable,  17 
Account  Sales,  176 
Acres  farmed,  per  man,  376 

per  horse,  377 
Addition,    checking    for    errors, 
103 
usual  errors  of,  105 
Advertising  expense,  167 
Agencies,  268,  312,  319 
Agricultural    economics,    bibliog- 
raphy, 413 
Allen,  illustrative  problem,  33 
Analysis    of    Ledger    accounts, 
349 


Analytical  statements,  conclu- 
sions from,  358 

Anderson,  Frank,  illustrative 
problem,  202 

Appendix,  385 

Appreciation  of  land,  122 

Articles  of  co-partnership,  186, 
188,  204 

Assessments  against  land,  121 

Asset,  3 

Attorney's  fees,  121 

Auction  sales,  176,  201 

Average  acres  worked,  statistics 
of,  377 

Balance,   brought   down,  53 

debit  and  credit,  30 

defined,  26,  30 

method  of  transferring,  48 
Balance  Sheet,  3 
Balancing    an    account,    65 
Bank,    reconciliation    statement, 
108,   110.     (See   also   **  sav- 
ings bank.") 
Bank  charges,  166 
Bedding,  314,  321 
Beef  cattle,  126 
Bees,  184 
Bibliography,  411 
Binder  twine,  214 
Black-illustrative 
10 


N 


problem,      9, 


417 


418 


INDEX 


'f 


« 


Block,    Eddie,   illustrative   prob- 
lem, 59 
Bly,    Edward,    illustrative    prob- 
lem, 78 
Board,  average  cost  of,  131,  132 

debit  to  Labor  account,  132 
Bookkeeping,  abbreviations,  15 
defined,  1 
doctor's  130 
Books  of  account,  object  of,  8 
purpose,   1 
rulings,  1 
Books  of  Original  Entry,  express 
debits  and  credits,  85* 
postings  from,  85 
reasons  for,  83 
Borrowing  money  (See  "notes'* 

and  *'Farm  Loan  Act") 
Buildings,  depreciation,  152,  155, 
279,  281 
account   entries,   121,   123 
interest  on  investment,  274 
expense  account,  155,  167,  270, 
279,   281 
Butter     fat,     160.       (See    also, 

milk) 
By-products,  257,  314,  319 

Capital,  accounting  definition,  17 

as  a  liability,  24 

as  net  worth,  4 
'  economic   definition,   17 

interest  on  partner's,  186 

proprietor's,  18 
Capital    account,    after    closing 
entries,  51,  53 

defined,  18 

entries,  27 

increases  and  decreases  in,  29 

loss   and   gain   account  closed 
into,  51,  284 


Capital  account,  partnership,  185 
reason  for,  38 

subdivided,    nominal    accounts, 
43 
Capital   expenditures,    122 
Capital  income,  271 
Cash  account,  verifying  balance, 

63 
Cash  balance,  agree  with   bank, 

108 
Cash     Book,     cannot     be     used 
alone,  95 
as   a  journal,   97 
entries  in,  93,  94 
posting   procedure,   96 
reconciliation    with   bank,    110 
totals  posted,  97 
transactions   affecting,   93 
Cash  Journal,  columnar  arrange- 
ment, 99,  102 
defined,  97 
equality   of   debit  and   credit, 

98 
posting  procedure,  101 
special  columns,  98 
use    of    sundry    columns,    98, 
101 
Cash  rent,  194,  258 
Cattle  account,  entries  126 

illustrated,   148 
Change  of  wealth  statement,  196 
Changes  in  capital,  L  &  G  state- 
ment, 31,  32 
Checking   account,   108 
Check  stubs,  errors  on,  110,  111 
Checks  outstanding,   110 
Claim  against  railroad,  166 
Clearing  land,  cost  of,   121 
Closing,    before    or    after    state- 
ments, 76 
process  under  cost  system,  278 


INDEX 


419 


Closing,  separate  steps,  279 
Closing  entries,  balances  remain- 
ing after,  52 

cost  accounting,  280     . 

defined,  48,  57 

equality  of  debits  and  credits, 
50 

field  accounts,  247,  248 

Loss  &  Gain  to  Capital,  51 

partnership,    186 

posted  from  journal,   156 

rules  for,  49,  50 
Columnar     books     (See     **cash 

journal") 
Commercial  fertilizer,   135 
Commissions,   268,   312,   319 
Comparative     inventory     record, 

140,  142 
Comparative  statements,  196 
Comparative  tables,  use  of,  348, 

357,   360 
Compound  entries,  93 
Consignee    and    consignor,    175, 

176 
Consignments,  entries,   176 

title  to  goods,  176 
Constructive  criticism,  223 
Contracts,  crops  sold  under,  168, 
180,  200 

in  writing,  181 
Conversion  table,  feed,  407,  408 

wages,  404  405 
Co-partnership   articles,   188 
Corn,  profit  in  feeding,  392 
Corn  account,   148 

fodder,  253 

illustrated,  249,  251 

inventory,   147 

silage  credited,  252,  311 

stalks  fed,  257 

planting,  310 


Corporation  stock,  200 
Correcting  errors,  107 
Cost    accounting,    benefits   trans- 
ferred, 223 

defined,   218 

departmental  system,  386 

general    accounting    compared, 
219 

labor  entries,  228 

purpose  of,  221,  222 
Cost  data,  analysis  and  compari- 
son of,  348,  379 

collection  of,  225 

interpretation  of,  223,  335 

statistical   system,   222 

use  of,  221 
Cost  of  harvesting,  247,  353 
Cost  per  ton,  silage,  253 
Cost    of    production,    effect    of 
selling  price  on,  261 

feed  prices   and   the,   391 

interest  an  element  of,  268 

items    included    in,    246,    247, 
353,  362,  366 

rent  an  element  of,  258 
Cost  of  silage,  251,   252 
Cost  system,  closing  process,  280 

defined,  218 

modifications,    284 

purpose,  222 
Cost  records,  use,  335 
Costs,    assembling    at   year    end, 
279 

effect  of  prices  on,  391 

elements  of,  220 

meaning  of,  342 
Credit  balance.  Liability  or  In- 
come, 74 
Credit,  defined,  18 
Crops,  production  and  costs,  360 

inventories,  136,  145,  147 


4<80 


INDEX 


Crops,  sold  under  contract,  168, 
180,  200 
selling  price  from  crib,  250 
selling  price  from  field,  249 
Crop  accounts,  analysis  of,  349, 
353 
entries,  129,  311 
iUustrated,   46,   148,   156,   251, 

352 
inventories,  136,  145,  147 
method  of  keeping,   249,  282, 

317 
seed,   254 
Crop  residues,  257 
Crop  rotation  on  farm  plot,  245 
Cross   posting   from   cash   book, 
97 

Dairy  cattle  account,  126,  127 

Dairy  products,  127 

Death    of    livestock,     138,     179, 

180 
Debit   balance,    resource   or    ex- 
pense, 74 
Debits,  defined,  18 
Debits  and  Credits,  equality  of, 
24,  62 
reasoning  out,  27 
Debts,   considered   property,   3 
Deductions,     not    made    in     ac- 
counts, 26 
Deferred  charges,  application  of, 
282,  317 
defined,  266 
manure,  267 
Departmental     cost     accounting, 

386 
Depreciation,  buildings,  155 
deducted  in  inventory,  146 
defined,  151 
entry  in  accounts,  152,  164 


Depreciation,   methods  of  calcu- 
lating, 153,  154 
not  offset  by  appreciation,  123 
reserve  for,  155 
table  of,  154 
theory  of,  155 
substitute  for  inventory,  151 
Diminishing   value,    depreciation, 

152 
Distribution       of        partnership 

losses  and  gains,  186 
Division    of    labor    in    account 

books,  84 
Donation,     exchange     labor     as, 

234 
Double    entry,    defined,    23,    59, 

87 
Drawing      accounts,      partner  % 

187,  204 
Dredging,  charges  for,  121 

Efficiency    of    labor    and    horse 
labor,  373,  376 

Eggs,  accounting  treatment,  128 
entries  for,  255 
price  to  household,  400 
sold  from  farm,  209 

Elements  of  costs,  220 

Entry,  defined,  19 

cash   book   illustrated,   94 
cash  journal  illustrated,  99 
journal  illustrated,  87 

Equipment,      depreciation,      152, 
153,  154,  279,  281 
entries  for,  128 
expense,  inventory,   150 
expense     in     cost     accounting, 
262,  263,  270,  279,  281,  282, 
316 
interest  on  investment  in,  276 
inventory,  143,  146,  151 


INDEX 


421 


Equipment,  proportionate  to  horse 

labor,  262 
Errors,  check  stubs,  110 
correction  of,  107 
in  transactions,  80 
not  detected  by  trial  balance, 

63 
opportunities  for,   103 
prevention  of,  84,  103 
rules  for  locating,  105 
types  of,  104 
unavoidable,  103 
Exchange    labor,    account,    233, 

234,  318 
balance  not  a  resource,  234 
horse,  239 

journal  entries  for,  239 
recording,  235,  236,  237 
Expenses  direct  and  indirect,  278 

(See  also  General  Expense) 
Extra  labor,  210,  312 
Extraordinary      losses,      auction 

sales,  176,  201 
death    of    livestock,    138,    179, 

180 
effect   on   cost   of  production, 

344 
fire  losses,  178,  202 
treatment    of    in    accounting, 

267 

Fair  exhibits,  175 

Family's  labor,  131,  133,  162, 
237,   279,  280,  313 

Farm  accounts,  purpose,   336 

Farm  and  individual  income 
statement,  197,  198,  199 

Farm  investments,  rate  of  re- 
turn, 401 

Farm  Loan  Act,  325,  328 

Farm  plot,  245,  308 


Farm  products,  value  to  house- 
hold, 132,  254,  400 
Fay,  L.  E.,  illustrative  problem, 

207,  287,  345 
Feed,  account,  135 

arbitrary   distribution   of,   285 

calculations  for,  406 

entry  in  cost  system,  243,  292, 

312 
inventory  prices,  388 
pasturage,  256 
prices  of,  consumed,   389 
seed  used  for,  254 
silage,  251 

stubble  and  stalks,  257 
Feed    records,    illustrated,    241, 
242 
journal  entries  from,  243 
purpose  of,  240 
Feeding  tests,  240,  285 
Fencing,  charges  for,   121,   122 
Fertilizer,  account,  135 
a   deferred   charge,    266,    282, 

317 
manure,  267 
Fictitious  profits,  386 
Field     accounts,     analysed     and 
compared,  364 
closing,  248,   282,  317 
entries  in,  246 
illustrated,  250,  351 
inventory,  147,  317 
methods  of  keeping,  247 
reasons  for,  245 
seed   charged    to,    254 
Finance  and  Credit,  bibliography, 

413 
Financial    advantages,    judging, 

380,  381 
Financial    condition,    shown    by 
statements,  8 


422 


INDEX 


)i 


I 


Financial     progress,     shown     by 
statements,  8 

Financial    Statements,     analysis 
of,  7 
defined,  8 

prepared    from    trial    balance, 
72 

relation  to  trial  balance,  74 
Financial  worth,  defined,  4 
Fire  losses,   178,  202 
Fiscal  year,  33,  140 
Flat  rate,  horse  labor,  233 

man  labor,  232 
Fodder,  253 
Folio,  defined,  103 
Freight  on  consignments,  176 
Furnishings,  household,  131,  309 
inventory,  388 

Gain,  not  necessarily  in  cash,  si 
Garden  account,  255,  313 
Gardening,  market,  180 
General  expense  account,  closing 
under    general    system,    44, 
45,  50 
closing     under     cost     system, 

280,  282,  283,  318 
illustrated,  41,  45 
inventory,   149 
tile  replaced,  161,  164 
Grain   accounts    (See   "crop   ac- 
counts *') 
Grain,   inventory   prices,   388 
Graphical  methods,  373 

Hail  losses,  178 

Half-interest  in   equipment,   215 

Harness      (See     **  Equipment '  0 

also  p.  208 
Harvesting  costs,  247,  249,  353 
Hired  man's  account,  118,  166 


Hives,  inventory  of,  184 
Hogs,  corn  marketed  as,  392 
Honey,  184 
Horse,  account,  125,  259 

credited  with  horse  labor  232; 
241,   265'  (See  aUo   *' Live- 
stock'') 
Horse   labor,   average   acres   per 
horse,  377 

average  cost  per  horse,  232 

effect  of   feed   prices   on,   394 

journal  entries  for,  232,  316 

records  of,  232 
Horses,  for  work,  265 

for  sale,  265 

traded  201 

Hourly    cost,    horse    labor,    232, 
316 
labor,  231,  315 
Household,     and     the    inventory 
record,   159 
account   in   farm   ledger,   130, 
131 

charged   for  interest,   326 
charged  for  rent,  259,  310 
cost  of  board,  131 
effect  on  farmer's  profit,  197 
family  labor,  131 

furnishings      inventory,      309, 

388 
income  from  garden,  255,  313 
milk  and  eggs,  209,  255,  320 
price  of   farm  products  used, 

400 

value  of  farm  products  used, 
131,  208 


Idle  time,  reduction  of,  373 
Illustrative       problems         (See 

''Problems'') 
Implements  (See  **  Equipment ") 


INDEX 


423 


Improvements  to  land,  121,  122 
Income,  as  a  farmer,  271,  346 

equivalent  expressions,  39,  42 

from  capital,  271,  348 

from  labor,  347 

from  management,  348 

statistics  of,  338-342 
Individuals'  profit,  197,  272,  273, 

346 
Inherited  buildings,  123 
Inherited  land,  121,  123 
Insurance,    adjustment    of    loss, 
178 

paid  in  advance,  266 

premium  paid,  34 
Interdepartmental      transactions, 

385 
Interest,  debits  and  credits,  27, 
41,  45,  78,  79,  80,  160,  212, 
299,  319 

buildings,   274 

deducted  from  note  discounted, 
119 

distinguished  from  rent,  275 

element  of  cost,  268 

equipment,   262,   276 

field  account  entries,  246 

land,  273 

livestock,  276 

on   investment,   270,   279,   281, 
298,  300,  326 

on  mortgaged  property,  275 

orchards,  182 

partner 's    capital,    186 

pasture,  257 

rate  of,  385,  401 

silo,  253 

\*orking  capital,  277 
Interpretation,     importance     of, 
335 

of  Loss  and  Gain  account,  346 


Inventories,      crop,      136,      145, 
147 

defined,  136 

depreciation   a  substitute   for, 
151 

effect  on  loss  or  gain,  135 

entries  for,  136,  141 

household,  388 

livestock,  138,  147 

miscellaneous  supplies,  145,  149 

pricing,  387 

recording,  139,  202 

taking,  139 
Inventory  record  illustrated,  142, 
143,  144,  145 

relation  to  accounts,  140,  141 

under  share  rental,  193 
Investment,  23,  29,  35 

Jones,  John,  illustrative  problem, 

165 
Journal,  compound  entry  in,  93 

closing  entries,  107,  108,  156 

entries  illustrated,   87,   89 

posting  procedure,  90 

posting  references,  88 

sole  book  of  original  entry,  86 
Junk,  178 

Labor,  arbitrary  distribution  of, 
284,   285 
average  acre  per  man,  376 
contract  crops,  180 
cost  includes  board,  132 
daily  report  of,  228 
efficiency,  376 
entries  for,  132 
extra,  210,  312 
family,  133,  162,  313 
handling,  373 
statistics,  374,  377,  378 


4^4 


INDEX 


'I 


i 


Labor,  typical  entries,  133 

under  partnership,   188,   189 
Labor  cost,  hourly,  231 
Labor   hours,    statistics   of,   374, 

377,  378 
Labor  income,  271 
statistics  of,  337 
Labor  of  proprietor,  131 
Labor    records,   horse,    232,    263, 
296 

illustrated,  226,  227,  236,  237 

journal  entries  from,  228,  239 

U.    S.    Dept.    of    Agric,    228, 
229 

use  of,  225,   294 
Land,  account,  121 

appreciation  of,  122 

fluctuating  value  of,  122 

interest  on  investment,  273 

sale  of,   122 
Landlord,  share  rental,  192,  259, 
260,  288,  310 

statistics  of  income,  336,  341 

tenant  and,  191 
Law,  bibliography,  415 

partnership,    186,    188 
Lease,  entry  for,  258 

rental  provisions,  258,  261 

share  rental,  191 
Ledger    (See  also  *' Accounts") 

can  be  used  alone,  14,  83 

closing,   48 

contains  all  essential  data,  83 

defined,  18 

importance,  12 

posting  references,   88 

ruling,  19 

used  with  other  books,  83 
Liabilities      (See    also    **  State- 
ments ' ') 

credit  balances,  30 


Liabilities  defined,  3 
of  partners',  188 
Liberty  bonds,  302 
Livestock     (See   also    ''Swine,*' 
''Cattle,"         "Horses," 
"Poultry"  and   "Sheep") 
analysis  of  products  of,  370 
comparative  analysis  of,  366 
comparison  of  costs,  391 
death  of,  138,  179,  180 
insurance  on,  178,  179 
interest  on  investment,  276 
inventories,  138,  147 
prices,  387 
manure,  267 

natural  increases,  125,  138 
price  of  feed,  389 
silage  fed  to,  253 
Loan  on  a  note,  80 
Long,  A.  E.,  illustrative  problem, 

113 
Loss  and  Gain  account,  closing  to 
capital  account,  51 
contents  of,  51 
illustrated,  47,  269,  270 
reading  a,  346 
sale  of  land,  122 
similarity    to    Loss   and    Gain 

Statement,  47,  57 
summary  of  nominal  accounts, 
44,  47 
Loss    and    Gain    Statement,    an- 
alysis of  L  &  G  account,  7, 
76 
explains  changes  in  net  worth, 

7 
relation   to  Statement  of   Re- 
sources and  Liabilities,  76 
taken  from  capital  account,  32 
Losses     (See    also    "Extraordi- 
nary Losses") 


INDEX 


425 


Losses,   not   always   decrease   of 
cash,  32 

Machinery    (See  "Equipment") 
Management,   aided  by   account- 
ing, 371 
policies,    363,    373,    379 
Manager's  ability,  257,  348 
Mansfield,  Harry, 

illustrative  problem,  35 
Manure,  2,  67 
Map     of     farm     (See     "Farm 

Plot") 
Market  gardening,  180 
Market   prices,    use   in    cost   ac- 
counting, 390 
use  in  inventory,  387 
Marketing    and    selling,    biblio- 
graphy, 415 
May,  C.  P.,  illustrative  problems, 

308,  319,  325,  381 
Merchandise    account,    criticism, 
124 
entries,  124 
subdivided,   124 
Milk,  entries  for,  255 
price  to  household,  400 
skim,  for  young  stock,  313 
sold  from  the  farm,   209,  320 
Miller,  W.   L.,  illustrative  prob- 
lems,  158,   161 
Mill-feed    (See  "Feed") 
Miscellaneous     income     account, 
42,  46 
commissions,  268 
Miscellaneous  supplies  inventory, 

145,  149 
Mixed  accounts,  commercial,  123 
farm,  124 

Modifications    of    cost    systems, 
284 


Mortgage,  interest,  275 
note,  nature  of,  25 
See  aZ«o  ("Notes") 

Natural    increase    of   farm    ani- 
mals, 125,  138 
Negotiable       instrument       (See 

"Notes") 
Neighbors    (See   "Exchange    of 

Labor  Account") 
Net  Resources,  as  capital  of  pro- 
prietor, 18 
Net  worth  (See  also  "Capital") 
changes  in,  8 
defined,  4 
New  projects,  cost  of,  379 
Nominal    accounts,    defined,    43, 
54 
transferred  to  L  &  G,  48 
Normal  cash  rent,  260 
Notes,  entries,  119 
payable  entries,  24,   120,  169, 

208 
receivable,      discounted,      119, 

163 
receivable    and    payable    dis- 
tinguished, 120 
Numbers  for  fields,  245 
Nursery  stock  purchases,  182 

On  account,  defined,  58 
Opening  entries,  from  inventory 
record,  141 
partnership,  185 
procedure,  24,  89 
Operation  of  several  farms,  194 
Orchards,    cost    before    bearing, 
182 
entries  in  account,  182 
expense  and  income,  183 
Organization    and    management, 
bibliography,  412 


4^6  INDEX 


Other  horses,  265 
Outstanding  checks,  109 
Over  and  short,  63,  111 

Paper  profits,  386 

Partner,   liable   for   firm   debts, 

188 
Partnership,    agreement,    clauses 
in,  188,  204 

closing  entries,  186 

dissolution,  190 

division  of  profits,  186 

drawing  accounts,   187,   204 

interest  on  capital,  186 

landlord  and  tenant,  191 

legal   difficulties,   188 

opening  entries,  185 

salaries,  187 

share  rent  under,  191 

vs.  single  proprietorship,  184 
Pass  book,  109 
Pasture,  entries  in  account,  256 

interest  on  investment,  274 

woodland,  184 
Pasture- day,  defined,  257 
Percentage,  inventory  by,  151 
Permanent  improvement  to  land, 

121 
Personal  accounts,  defined,  55 
Personal  property,  class  of,  17 
Physical  inventory,  139,  140 
Planting  (See  **Corn'') 
Plot  of  farm,  245,  308 
Policies    of    management,    363, 

371,  372 
Posting,  cash  book,  96 

cash  journal,  101 

defined,  85 

journal,  90,  92 

precaution  against  errors,  104 

references  to  pages,  88 


Poultry  (See  also  *' Livestock  ") 

account,  127 

products,  128 
Prices,   determination  of,  224 

discussion  of,  385 

effect  on  profits,  386 

feed  consumed,  240 

inventory,  387 

products  harvested,  248 

products    used    in    household, 
400 

silage,  252 

vs.  cost  of  production,  224 
Problems,  illustrative,  Chapter  I, 
9 

Chapter  II,  33 

Chapter  III,  56 

Chapter  IV,  77 

Chapter  V,  112 

Chapter  VI,  158 

Chapter  VII,  199 

Chapter  VIII,  286 

Chapter  IX,  286 

Chapter  X,  381 
Production    and    costs,    analysis 
of  crops,  360 

analysis  of  livestock,  369 

bibliography,  414 
Productive  elements,  218 
Products,  inventory  prices,  388 
Profits,  equivalent  expressions,  32 

fictitious,  386 

individual's,  197,  272,  273,  346 

meaning  of,  344 

relation  to  manager's  ability, 
460 
Property,  legal  classes  of,  17 

resources,  3 

rights  to,  3 

transfers  between  departments^ 
386 


INDEX 


4«7 


^roprietblr,   value   of   his   labor, 

131,  347,  348 
Pruning  orchards,  182 

Questions    (See   **  Review    Ques- 
tions") 
Questions  of  policy,  371,  372 


ft 


Inter- 


Railroad  claim,  166 
Rate    of   interest    (See 

est") 
Real  accounts,  defined,  56 
Real  property,  17 
Reconciliation,    check    book    and 

bank,  108 
Records,  feed,  240 
horse  labor,  232 
inventory,  139,  142,  145 
labor,  225,  231 
Red   ink   entries,   labor   records, 

236 
Rent  adjustment,  258 
Bent,  cash  or  share,  191,  258 
distribution   in  accounts,   258, 

288,  310 
household,  130 
notes  given  for,  208 
pasture,  257 
share,  191 
vs.  interest,   275 
Replacements,  furnishings,  389 
Resources     (See     also     *' State- 
ments") 
debit  balances,  30,  73,  74 
defined,  3 
Returned  purchase,  80 
Revaluation,  inventory  by  means 

of,  151 
Review  Questions, 
Chapter  I,  12 
Chapter  II,  36 


Review  Questions, 

Chapter  III,  60 

Chapter  IV,  81 

Chapter  V,  115 

Chapter  VI,  171 

Chapter  VII,  216 

Chapter  VIII,  243 

Chapter  IX,  332 

Chapter  X,  382 
Risk   of   operations   and   owner- 
ship, 348,  403 
Rodgers,  Frank,  illustrative  prob- 
lems, 79,  112 
Rotation  of  crops,  effect  on  cost, 
246,  366 

plotted,  245 
Ruling  on  account  in  balance,  54 

Salaries,  partners,  187 
Salvage,  178,  202 
Savings  bank  deposit,  209 

interest,  212 
Seed  account,  254 
Services     between     departments, 

386 
Several  farms,  operation  of,  194 
Share  rent,  191,  258 

inventory  record  and,  193 
Sheep  account   (See  also  **  Live- 
stock"), 128 
Shrinkage,  grain,  362 

silage,  253 
''Side  lines,"  258 
Silage,  entries  for,  251,  311 
Silo,  depreciation,  281,  329,  330 
Sketch    of    farm,    use    of,    245, 
308 

Slaughtered   swine,  entries,   126, 

131 
Smith,  illustrative  problem,  11 
Sowing  seed,  310 


428 


INDEX 


INDEX 


429 


n 


Special  columns,  cash- journal,  98, 

102 
Statements,    change    of    wealth, 
196 
copied  in  ledger,  77 
Farm  and  Individual  Income, 

197 
Resource   and   Liability,   after 
closing,  52 
comparison,  6 
defined,  3 

from  trial  balance,  72 
illustrated,  75 

prepared    from    ledger    ac- 
counts, 30 
supplemented    by    Loss    and 
Gain  Statement,  7,  76 
Stock  of  corporation,  200 
Straight  line,  depreciation,  152 
Stubble  for  feed,  257 
Student's  accounts,  59 
Subscriptions  to  periodicals,  168 
Subsidiary  records,  225 
Subtractions    not    made    in    ac- 
counts, 26 
Supplies,  in  inventory  record,  145, 
149 
inventory  prices,  388 
Swarm  of  bees,  184 
Swine  account,  entries,  126 
(See  also  "  Livestock *') 

Taxes,  real  and  personal,  200 
special  assessments,  121,  200 
Temporary  accounts,  43 
Tenants,  and  landlord,  191 
statistics  of  income,  339 
Tiling,    charges    for,    121,    161, 

164 
Time-sheet,  U.  S.  Dept.  of  Agric, 
228,  229 


Timothy  seed,  167 
Tools,  265 

loaned,  140 
Tornado  losses,  178 
Tractor  account,  129 

hours,  entry  for,  233 
Trading  account,  124 
Transactions,  analysis  of,  23 
defined,  16 
double  effect  of,  16 
equality  of  Dr.  and  Cr.,  24 
essentials  of,  2 
omission  of,  63,  107 
written  record  necessary,  2 
Transplacement,  defined,  106 
Transposition,  defined,  105 
Trial  Balance,  before  and  after 
closing,  71 
credit     balances,     nature     of, 

74 
debit  balances,  nature  of,  73 
defined,  62 

errors  undetected  by,   63 
financial  statements  from,  64^ 

72,  77 
illustrated,  71,  72,  73 
not  an  absolute  proof,  63 
**out  of  balance,'*  62 
preparing  for  statements,  73 
procedure  in  taking,  65 
purpose,  62 

relation  to  statements,  74 
when  taken,  64 

Uniform  accounts,  194 
Unit  cost  of  production,  246 
Units  of  work,  378 
Unprofitable  elements,  224 
U.  S.  Dept.  of  Agric,  daily  labor 

record,  228,  229 
Utensils,  household,  130 


Value,  defined,  17 

Verifying  cash  book  balance,  108 

Wages,   average    rate   per   hour, 
231,  315 
calculation  of,  403 

Warner,  J.  W.,  illustrative  prob- 
lem 199 

Wear  and  tear,  151 

Weld,  illustrative  problem,  10 


White,  illustrative  problem,  11 
Work  horses,  265 

price   of  feed  for,  394 
Work  units,  378 
Working     capital,     interest     on, 

277 
Woodlan-i,  183 

Woods,  George,  illustrative  prob- 
lem, 33,  56,  57 
Wool,  128 

(2) 


,i\m  n 


\m 


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C28(842)MSO 

i 

0044259034 


yiiH  OiOO'i 


NEH 


MAR  2  81994 


Soovill 
Farm  accounting 


APR  1 


6  1946 


JUN12«31 


END  OF 
TITLE 


